"In Defense Of Prosperous Inequality"

Financial equality or wealth creation? What would you prefer our economic leaders optimize for? (TechCrunch):

There is an important role for the government to provide safety nets and job training, but indirectly blaming innovators isn’t a productive message.

But, financial equality has never been, and will never be, a goal of the Internet economy. The goal is wealth creation. For those who can now access world-class professors and medical treatment anywhere in the world, Silicon Valley has lived up to its promise.

What is sometimes depressing is that I know there is not an insignificant number of people who believe we should optimize our societies for financial equality.

Heh

"Where are you from?" (YouTube)

Cash, Development and Dependence

The results are impressive (Berkeley) and as interpreted by Matthew Yglesias (Slate via Chris Blattman):

The research comes from a 2008 initiative in Uganda’s very poor northern sections. The government announced plans to give roughly a year’s worth of average income (about $382) to young people aged 18-34. Youths applied for the grants in small groups (to simplify administration) and were asked to provide a statement about how they would invest the money in a trade. But the money was explicitly unconditional—parceled out as lump sums with no compliance monitoring. [...]

The government selected 535 groups—a total of about 12,000 people—for the experiment. Of the 535 groups, about one-half were randomly selected to actually get the money, and the rest were denied. Blattman, Fiala, and Martinez then surveyed 2,675 youths from both the treatment and the control group before dispersal of money, two years after dispersal of money, and four years after dispersal of money. The results show that the one-off lump-sum transfer had substantial long-term benefits for those who got the cash. As promised, the people who received the cash “invest[ed] most of the grant in skills and business assets,” ending up “65 percent more likely to practice a skilled trade, mainly small-scale industry and services such as carpentry, metalworking, tailoring, or hairstyling.” Consequently, recipients of cash grants acquired much larger stocks of business capital and thus earn more money—a lot more money. Compared to the control group, the treatment group saw a 49 percent earnings boost after two years and a 41 percent boost after four.

Yglesias may be a bit overenthusiastic to conclude that "the message is that taking a huge bite out of global poverty may be easier than most people realize. Poor people just need more money." He/Blattman hypothesize that at least some of the poverty is as a result of the lack of access to "affordable" capital. There is however research that suggests that even "unaffordable" capital has significant long term benefits (WSJ).

This being said, there's a large body of evidence that microfinance doesn't/can't help the poorest of the poor (Google). That borrowers of microfinance are one step up the very large and deep "bottom" in the scale of poverty. So this may help to answer the question of what interventions may work in helping the poorest (though the research Yglesias cites doesn't specifically address this point). Further, I think it's important to note that these were one time payments versus ongoing pay outs which I think is an important distinction (as there's also evidence that entitlement programs are detrimental to poverty reduction in the developed world (Heritage)).

On the other hand, I think the research on minimum income, like the study in India, deserves a closer look. Even so, it's exciting to see the idea of cash giving gaining traction (Forbes via Chris Blattman).

Update: Blattman qualifies some of the new optimism and expands on his views on cash transfer programs (ChrisBlattman)

Update #2: Blattman rounds up some of the new research on education, cash grants and entrepreneurship in development (ChrisBlattman)

Update #3: When every argument begins with “is it better than cash?” (AidThoughts via Chris Blattman)

Update #4: (Oct. 25) from Chris Blattman - "What happens when $1000 of manna falls onto your mobile phone? The GiveDirectly study of unconditional cash to poor farmers in Kenya is out."

The True Size of Africa

I think it's fair to say that most people don't understand the physical size and scale of Africa (Isomorphismes via Beata/Chris Blattman)

An Apt Observation

Richard Epstein at Hoover (via Instapundit): "The IRS is embroiled in scandal but Congress is more concerned with the entirely legal tax transactions of a profitable American company."

Irony: "Capitalist Fantasy Tops China Box Office, Spurs Debate"

On so many levels... From WSJ's China Blog:

“American Dreams in China,” a comedy about business partnership and success, is now the weekly champion of China’s box office, beating Hollywood blockbusters “Iron Man 3” and “The Croods.” While some among the Chinese audience are cheering for the entrepreneurial spirit the movie endorses, others say skeptically that it equates success with wealth and fame.

Strawmen, Development and Markets

Particularly relevant given the recent tragedy in Bangladesh, ASI's latest takedown of the book 23 Things They Don't Tell You About Capitalism (Amazon) attacks the idea that it's capitalists who have claimed that the poor in developing countries "are not entrepreneurial":

Chang's claim is that we all get browbeaten into believing that poor countries are poor because the people there are not entrepreneurial. He does on to point out, quite rightly, that this is an absurd thing to believe. The poor everywhere are vastly more entrepreneurial than us bourgeois middle class types: they have to be in order to survive. This is as true of poor people in rich countries as it is in poor too. The ducking and diving that goes on to make a life on benefits more pleasant is entrepreneurialism in a raw form. All of which is why no one at all does go around claiming that the poverty of some countries is based upon a lack of that raw entrepreneurialism making that claim something of a strawman.

Chang is also quite right in pointing out that the reason why this greater extent of entrepreneurialism amongst the poverty stricken doesn't then go on to create great wealth is not because of some deficiency in the people themselves. Nor in their ability to do that ducking and diving. The lack is in the institutions in that society that allow the microbusiness to flower into the larger one. This is indeed quite true.

2008: "Why Washington Hates Wall Street"

I don't think I've ever seen the rivalry explained so succinctly - though perhaps the most depressing part of this is that despite how the financial crisis was created in Washington through incentives structured badly, it's Wall Street got the blame (Slate via Instapundit):

“Isn’t this exciting?” Rep. Ed Markey enthused to me on Oct. 19, 1987 (“Black Monday”). A young congressional correspondent for Newsweek with nary a stock or bond to my name, even I was taken aback by Markey’s undisguised pleasure. When you stop and think about it, though, it makes perfect sense. Modern Washington owes its very existence to the 1929 crash, which occasioned a vast expansion of the federal government under President Franklin D. Roosevelt. A legacy of the increase in federal power during that era, largely undiminished during a 28-year electoral backlash against big government, is that Washington became Wall Street’s principal rival when it came to running the world. Which wielded more power—the financial markets or the government? Uncle Sam had the world’s largest military, but Wall Street had all that goddamned money. The mansions in Greenwich, Conn.; the trophy wives; the private jets—by comparison, the people who wielded power in Washington—including most presidents—were petits bourgeois. Even libertarian conservatives resent, on a personal level, the Wall Street swells whose interests they fight for daily. There aren’t a lot of millionaires working at the Cato Institute [...]

Let me put it in terms a smart financial journalist like Brauchli can readily understand. On Wall Street, financial crisis destroys jobs. Here in Washington, it creates them. The rest is just details.

The problem with high US taxes isn't Ireland

Because of Apple's testimony before US Congress last week, it's been made a bit of a whipping boy for the tax planning those like Apple have done (Reuters). The argument can easily be made that it's not only in the best interest of Ireland to keep its taxes low, but that anyone who is interested in seeing economies like Ireland develop, should support them (ASI):

The reason is that thing called tax incidence. Companies don't pay corporation tax: it's some combination of the shareholders and the workers who do. This is not a point in argument: the only argument is about what the portions are, not the fact that the burden falls upon these two groups. We also know what it is that influences which group: it's how large the economy is in relation to the world economy and how open it is to capital movement. The smaller and more mobile, the more the workers get it in the neck.

The mechanism is simple enough. It's pretty much straight from Adam Smith in fact. There's an average rate of return to capital: a jurisdiction that taxes that return to capital will have a return lower than that global average. So, some domestic capital will flow out seeking the higher foreign returns, some foreign capital will not flow in for the lower domestic ones. There's thus less capital employed in the economy. Adding capital to labour is what drives up the productivity of labour: the average wages in a country are determined by the average productivity in that economy. So, tax companies, get less capital employed, wages are lower than they otherwise would be. The workers are bearing part of the burden.

As I say, the smaller the economy and the more open it is then the more of that burden is upon the workers. And in a wonderful result back in 1980 Joe Stiglitz showed that the burden upon the workers can actually be more than 100%. That is, the workers lose more in wages than the government gets in tax.

Update: The Tax Foundation 1 – New York Times 0 (Dan Mitchell)

"Correlation vs causation in a single graph"

Ha - Chris Blattman, (via Instapundit):

One perspective on what the Bo Xilai scandal means for China

Well, yes (NPR) - interview with author Wenguang Huang, on NPR:

We try to point out the fact that the China model, which is development without democratic reforms, is not sustainable. Even the senior leaders in China right now, they start to recognize that. Look at this Bo Xilai scandal, because of this lack of transparency in the succession process. And then there is all kinds of political conspiracies, persecutions and murders. In order to get ahead, people have to do this. In other words, we feel like, if China does not introduce political reforms, and does not introduce open, fair elections in China, there will be more political earthquakes.

Bangladesh workers need more, not less free markets

In the aftermath of the collapse at Rana Plaza in Bangladesh, where the death toll has now risen to 1129 (Business Standard), there have been many to scapegoat "unchecked capitalism" (Hopeforthesold). The reality is somewhat different (Reason) - in fact, the opposite:

Much as in Britain after the Enclosures, urban migration swells the ranks of workers, allowing employers to take advantage of them. Since Bangladesh does not have a free-market economy, starting a business is mired in regulatory red tape — and worse, such as “intellectual property” law — that benefit the elite while stifling the chance for poor individuals to find alternatives to factory work. (The owner of the Savar factory, Mohammed Sohel Rana, got rich in a system where, the Guardian writes, “politics and business are closely connected, corruption is rife, and the gap between rich and poor continues to grow.”) Moreover, until the factory collapse, garment workers could not organize without employer permission.

Crony capitalism deprives Bangladeshis of property rights, freedom of exchange, and therefore work options. The people need neither the corporatist status quo nor Western condescension. They need radical land reform and freed markets.

What is even worse is that those like Hopeforthesold are seemingly advocating that Westerners turn their backs on Bangladesh substituting trade for unsustainable aid.

Money buys happiness?

Apparently (TSP). Another hypothesis? Those who recognize that happiness is found within and take responsibility for their own happiness tend to also be wealthier:

Looking at comparisons among countries and within countries, [Betsey Stevenson and Justin Wolfers] find that when it comes to happiness, you can never be too rich.


Stevenson and Wolfers also find no “satiation point,” some amount where happiness levels off despite increases in income. They provide US data from a 2007 Gallup survey:


The data are pretty convincing. Even as you go from rich to very rich, the proportion of “very satisfied” keeps increasing. (Sample size in the stratosphere might be a problem: only 8 individuals reported annual incomes over $500,000;100% of them, though, were “very happy.”)

Does Hollywood hate the future?

I wonder how much this has to do with ideology. A recent TechCrunch post looks at Hollywood's futuristic portrayal of technology which is overwhelmingly distopian:

The Matrix, Avatar, Prometheus, now I’m just looking over films I own that fit the mold. All are either dystopian or a net-negative for technology. The most positive one I can find is Contact, which still has plenty of negative technological elements (and this is a film based on a book written by perhaps the quintessential science/technology optimist, Carl Sagan).

Where is the It’s a Wonderful Life set in 2150? Are a few scenes from Back to the Future Part II really the best we got?

Again, I think the answer is that we already live in a technological utopia of sorts. No, the world isn’t perfect, but the recent advances in technology have given us so much. And people go to the movies to escape reality. It’s just too bad that science fiction films have essentially become horror movies.

Are traders and speculators to blame for increasing poverty?

Despite making excellent scapegoats for bad public policy, debunking the myth that speculators harm the poor (ASI):

On the one hand the most limited version of Doane's thesis—that speculation increases prices—is undeniable. When speculators buy into the market, they raise the price then. But the overall case makes little economic sense. If speculators' influence is big enough to boost prices when they buy in, it is big enough to cut prices when they sell out. That is, speculators both add to, and take away from, prices.

A speculator makes money by buying in times of relative plenty, when prices are low, and selling in time of relative scarcity. For helping society ration effectively—making sure the differing scarceness of a good is reflected in its price, thereby improving individual decision-making—the firms earn a return. If a speculator, by contrast, buys in at the top of the market, reducing supply when it is most needed, and sells at the bottom, when it is least needed (relatively) they lose money. This is how the profit and loss system, in a good institutional structure, encourages and rewards socially-minded behaviour. And speculation should smooth volatility in markets. A jump in price will encourage sales from speculators, bringing the price back down. A dip in price will encourage speculators to buy, bring the price back up. This result dates back to a 1953 paper from Milton Friedman, which is hard to find online, despite being cited 2411 times according to google scholar.

An Ode to the Genius of the Humble Shipping Container

From the Economist:

In a set of 22 industrialised countries containerisation explains a 320% rise in bilateral trade over the first five years after adoption and 790% over 20 years. By comparison, a bilateral free-trade agreement raises trade by 45% over 20 years and GATT membership adds 285%.

To tackle the sticky question of what is causing what, the authors check whether their variables can predict trade flows in years before container shipping is actually adopted. (If the fact that a country eventually adopts containers predicts growth in its trade in years before that adoption actually occurred, that would be evidence that the “container” jump in trade was actually down to some other pre-existing trend.) But they do not, the authors say, providing strong evidence that containerisation caused the estimated surge in trade.

Dying baby saved by 3D Printer

If the promise of 3D printing wasn't something you were already excited about, a pretty cool story of how scientists used a 3D printer to save a baby (CNN via Instapundit):

Green, who has been practicing for two decades, and a UM colleague, biomedical engineer Scott Hollister, had been working for years toward a clinical trial to test the splint in children with pulmonary issues when they got a phone call from a physician in Ohio who was aware of their research. “He said, ‘I’ve got a child who needs (a splint) now,’ ” referring to Kaiba, said Green. “He said that this child is not going to live unless something is done.”[…]

What followed in Kaiba’s case was a painstaking process of creating the splint on the printer in layers. Information about each layer is transmitted from the computer to a laser beam, which melts the PCL into a 3-D structure. “We can put together a complete copy of a body part on the 3-D printer within a day,” Green said. “So we can make something very specific for a patient very quickly.” Green then took the splint, measuring just a few centimeters long and 8 millimeters wide, and surgically attached it to Kaiba’s collapsed bronchus. It was only moments before he saw the results. “When the stitches were put in, we started seeing the lung inflate and deflate,” Green said. “It was so fabulous. There were people in the operating room cheering.”

Inside Google Labs

Cool beans (Businessweek):

As the polymath engineers and scientists who work there are fond of saying, Google X is the search giant’s factory for moonshots, those million-to-one scientific bets that require generous amounts of capital, massive leaps of faith, and a willingness to break things. Google X (the official spelling is Google [x]) is home to the self-driving car initiative and the Internet-connected eyeglasses, Google Glass, among other improbable projects.[...]

Teller has turned his sky’s-the-limit thinking into Google X’s most visible export. Last March he spoke at the South By Southwest Interactive conference in Austin, Tex., telling a packed auditorium, “The world is not limited by IQ. We are all limited by bravery and creativity.” Last year, with longtime Google executive Megan Smith, he co-founded the company’s annual, invitation-only conference, Solve for X, a two-and-a-half-day gathering of a hundred or so big thinkers. At the recent session in February at CordeValle, a golf resort south of San Jose, speakers covered topics such as inflatable robots, eye examinations that can detect the early onset of Alzheimer’s disease, and nuclear fusion reactors. “There is really only one guarantee and that is if we don’t try, nothing is going to happen,” said Charles Chase, a senior program manager for Lockheed Martin’s (LMT) advanced development program, Skunk Works, who gave the fusion talk.

What makes a Risk-Taker?

Many counter the idea of entrepreneurship saying that they're risk adverse - and other than the fact that I think "traditional" jobs, if there is such a thing anymore, can be just as risky, here's some interesting research. "Often cautious people become Daredevils in the right context" (WSJ):

You might not think of yourself as a risk-taker. Think again. Recent studies using new experimental tools are upending the old belief that a person's appetite for risk is mostly inborn and unchanging. In fact, the reasons people take crazy gambles are far more complex. People who are cautious in some contexts may embrace risk in others, depending on factors such as their familiarity with the setting and their emotions at the time. The findings are exploding old stereotypes—that women are innately more cautious than men, for example, or that teenagers are inevitably risk-seekers.

"It has been surprising to learn what a wide variety of reasons people have for risk-taking," says Elke Weber, a professor of international business at Columbia University and a leading researcher on risk. Understanding the roots of risk-taking can guide people in making better decisions, she says. Some long to advance in their careers or have new adventures but overestimate the hazards. Others race quickly and without thinking into dangerous risks.

Quote of the Day: What Startups are Like

Ben Silbermann (birch.co via SwissMiss):

People say doing a startup is like a marathon. It’s actually a roadtrip at night with no headlights. You think you’re going to Toledo but you’re actually going to Miami and you might not have enough gas so you might need to buy gas from someone who might take you out if you aren’t driving well.