Tyler Cowen's Blog, page 319

Jakarta bleg

What should I look at?  Where should I eat?  Your advice is very much welcome and I thank you in advance.  And do any of you know where I can go to hear gamelan music?

Assorted links

1. They forgot about the elevator.

2. Is this fertility insurance?  Or crowd-funding for babies?  And Emily Oster on the research behind pregnancy taboos.

3. Parkour markets in everything.

4. “What are the most mindblowing recent advancements people still don’t know about?”

5. How to market a water charity.

6. Interview with Kevin Shields.

China’s experiment with cap and trade

Dirk Forrister and Paul Bledsoe report from the NYT:

China, the world’s largest emitter of carbon dioxide, has begun its effort in the southern city of Shenzhen, paving the way for a national Chinese market in a few years. Like Europe, which voted to extend and improve its emissions market, and Australia and New Zealand, Shenzhen chose a carbon market as the most efficient way to lower its greenhouse gas emissions.

Under the Shenzhen program, the government will set limits on carbon dioxide discharges for 635 industrial companies and 197 public buildings that together account for about 40 percent of the city’s emissions. Polluters whose emissions fall below the limit can sell the difference in the form of pollution allowances to other polluters. These companies must decide whether it is cheaper to reduce emissions or pollute above their limit by buying allowances, whose price will be set by supply and demand. But the pressure will be on, because the limits will decrease over time. Six more regional pilot programs are planned over the next year.

This piece offers some further details, including this:

The caps require the emitters to collectively cut their carbon intensity by 6.7 per cent a year between this year and 2015.

After reading multiple sources, however, it seems that all these numbers involve fudges.  And over the longer run the cap is defined relative to gdp:

Beijing has not agreed to binding caps on its emission volumes, but has set a target to cut emission intensity – carbon emissions per unit of gross domestic product – by 40 to 45 per cent by 2020 from the 2005 level.

Here is further analysis from The Economist, which reckons that actual binding carbon caps will take ten years to evolve.  This will be one good way to study whether these regimes are time consistent, noting that Europe’s regime has been in place for about ten years and still doesn’t work.

The price of phone calls for inmates will decline

After a decade of lobbying by prisoner advocacy groups, the Federal Communications Commission on Friday voted to lower inmate phone call rates.

The action seeks to address the exorbitant rates for phone calls made by inmates in jails and prisons across the country. A 15-minute phone call can cost $17, more than 10 times the average per-minute rate for typical consumer plans.

The proposal approved Friday will reduce the cost of phone calls made by prison inmates to a cap of 25 cents a minute for a collect call and 21 cents a minute for a debit or prepaid call.

By the way:

Phone companies oppose the changes, arguing they would make an already-competitive market even tougher on their bottom lines.

The companies insist it simply costs more to provide inmate phone services, which require security features such as call screening, restricting phone numbers and blocking three-way calls.

There is more here, and for the pointer I thank George McQuistion.

Is the Fourth Amendment Now Illegal?

In my view the fourth amendment is routinely being violated by the federal government. But is the fourth amendment, in particular the right to be secure in one’s papers, now illegal? Maybe. Violations of the fourth amendment by the federal government encourage the use of encryption but that avenue may now being blocked. Lavabit, the secure email service used by Edward Snowden, has suddenly and mysteriously closed with the creator leaving this message:

I have been forced to make a difficult decision: to become complicit in crimes against the American people or walk away from nearly ten years of hard work by shutting down Lavabit. After significant soul searching, I have decided to suspend operations. I wish that I could legally share with you the events that led to my decision. I cannot. I feel you deserve to know what’s going on–the first amendment is supposed to guarantee me the freedom to speak out in situations like this. Unfortunately, Congress has passed laws that say otherwise. As things currently stand, I cannot share my experiences over the last six weeks, even though I have twice made the appropriate requests.

Other secure email providers have also shut down.

Recently I asked for suggestions to add to the Bill of Rights. One of mine was:

Congress shall pass no law abridging the right of the people to encrypt their documents and effects. (Modern supplement to the fourth amendment.)

I guess that amendment isn’t going to pass. I should not be surprised. In 2003 I said the cyber-libertarians were naive to dream of a new world of privacy and liberty built on the foundations of the internet and public key cryptography. Sadly, I got that one right.

Hat tip: Lynne Kiesling.

Addendum: Here is a longer account of what may be going on with Lavabit. Key graph:

There are already two theories as to what a FISA order against Lavabit may have looked like. First, FISA could have ordered Lavabit to insert spyware or build a back door for the N.S.A., as American and Canadian courts reportedly did to the encrypted e-mail service Hushmail, in 2007. Second, FISA could have ordered Lavabit to permit the N.S.A. to intercept users’ passwords. But the truth may never come out.

My International Trade reading list

Many people have been asking me for this.  It’s not yet finished, but you can find the current version under the fold of this post.  Suggestions for adding are of course welcome…

Books: Paul Krugman, Pop Internationalism, Geography and Trade, and Development, Geography, and Economic Theory.  Dani Rodrik, One Economics, Many Recipes, and Jacob Viner, Studies in the Theory of International Trade (on-line).

All videos can be found on MRUniversity.com, if not in the (forthcoming, in September) international trade section than in the development economics class or a few on Mexico in the Mexico class.  In general I recommend viewing the videos before tackling the readings.

 

I. Comparative advantage and free trade

Bernhofen, Daniel and John C. Brown. 2005. “An Empirical Assessment of the Comparative Advantage Gains from Trade: Evidence from Japan.” American Economic Review.

Autor, David H. David Dorn and Gordon H. Hanson. 2013. “Untangling Trade and Technology: Evidence from Local Labor Markets.” NBER Working Paper.

Acemoglu, Daron, David Autor, David Dorn, and Gordon H. Hanson. 2013. “Import Competition and the Great US Employment Sag of the 2000s.” NBER Working Paper.

Goldberg, Pinelopi Koujianou and Nina Pavcnik. 2007. “Distributional Effects of Globalization in Developing Countries.” Journal of Economic Literature.

Videos: The two videos on Comparative Advantage, Sources of Comparative Advantage, Development and Trade, empirical evidence, Evidence on Comparative Advantage from Japan.

 

II.Free trade and tariffs

Paul Krugman. “The One-Minute Trade Policy Theorist.” (powerpoint)

Humphrey, Thomas M. 1987. “Classical and Neoclassical Roots of The Theory of Optimum Tariffs.” Economic Review, Federal Reserve Bank of Richmond.

Broda, Christian, Nuno Limao, and David Weinstein. 2008. “Optimal Tariffs and Market Power: The Evidence.” American Economic Review.

Arkolakis, Costas, Arnaud Costinot and Andres Rodriguez-Clare. 2012. “New Trade Models, Same Old Gains?” American Economic Review.

Kehoe, Timothy J. and Kim J. Kuhl. 2006. “How Important Is the New Goods Margin in International Trade?” NBER Working Paper.

Bernhofen, Daniel M., Zouheir El-Sahli, and RIchard Kneller. 2012. “Estimating the Effects of the Container Revolution on World Trade.” University of Nottingham Discussion Paper Series.

Nunn, Nathan and Daniel Trefler. 2010. “The Structure of Tariffs and Long-Term Growth.” American Economic Review.

Videos: Tariffs v. Quotas, International Trade Disciplines Monopolies, Effective rate of protection, Theory of Optimal Tariffs, Does “fair trade” help?, Malawi restrict trade in corn, Market reforms in Bangladesh, John Stuart Mill Terms of trade, The Shipping Container.

 

III. Heckscher-Ohlin and factor abundance theories of trade

Helpman, Elhanan. 1999. “The Structure of Foreign Trade.” Journal of Economic Perspectives.

Debaere, Peter. 2003. “Factor Abundance and Trade.” Journal of Political Economy.

Deardorff, Alan V. 1979. “Weak Links in the Chain of Comparative Advantage.” Journal of International Economics.

Trefler, Daniel. 1993. “International Factor Price Differences: Leontief Was Right!” Journal of Political Economy.

Davis, Donald R. and David E. Weinstein. 2001. “What Role for International Trade.” NBER Working Paper.

Davis, Donald R. 1995. “Intra-Industry Trade: A Heckscher-Ohlin-Ricardo Approach.” Journal of International Economics.

Deardorff, Alan V. 1982. “The General Validity of the Heckscher-Ohlin Theorem.” American Economic Review.

Videos: What is at Stake in Trade Theories?, The Heckscher-Ohlin Theorem, Evidence on the Heckscher-Ohlin Theorem.

 

IV. Increasing Returns

Donaldson, David. “Increasing Returns to Scale and Monopolistic Trade.” Powerpoint, on-line.

Helpman, Elhanan. 1987. “Imperfect Competition and International Trade: Evidence from Fourteen Industrial Countries.” Journal of the Japanese and International Economics.

Davis, Donald R. and David E. Weinstein. 2003. “Market Access, Economic Geography, and Comparative Advantage: An Empirical Test.” Journal of International Economics.

Baldwin, Richard and James Harrigan. 2010. “Zeros, Quality, and Space: Trade Theory and Trade Evidence.” NBER Working Paper.

Antweiler, Werner and Daniel Trefler. 2000. “Increasing Returns and All That: A View from Trade.” NBER Working Paper.

Debaere, Peter. 2005. “Monopolistic Competition and Trade, Revisited: Testing the Model Without Testing for Gravity.” Journal of International Economics.

Yi, Kei-Mu. 1999. “Can Vertical Specialization Explain the Growth of World Trade?” Journal of Political Economy.

Harrigan, James. 2001. “Specialization and the Volume of Trade: Do the Data Obey the Laws?” NBER Working Paper.

Bernard, Andrew B., J. Bradford Jensen, Stephen Redding, and Peter K. Schott. 2007. “Firms in International Trade.” NBER Working Paper.

Helpman, Elhanan. 2013. “Foreign Trade and Investment: Firm-Level Perspectives.” NBER Working Paper.

Tybout, James R. 2001. “Plant- and Firm-Level Evidence on “New” Trade Theories.” NBER Working Paper.

Bernard, Andrew B. and J. Bradford Jensen. 2004. “Why Some Firms Export.” Review of Economics and Statistics.

Videos: Trade and External Economies of Scale, Monopolistic Competition and International Trade, Trade and Increasing Returns: Evidence, Paul Romer, Robert Torrens on strategic trade policy, The Economics of Bollywood.

 

V. Gravity models

Anderson, James and Eric van Wincoop.  2004. “Trade Costs” Journal of Economic Literature.

Head, Keith. 2011. “Gravity for Beginners.” Presented at US-Canada Border Conference.

Hummels, David. 2007. “Transportation Costs and International Trade in the Second Era of Globalization.” Journal of Economic Perspectives.

Deardorff, Alan V. 1998. “Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?” NBER Working Paper.

Feenstra, Robert C., James R. Markusen, and Andrew K. Rose. 2001. “Using the Gravity Equation to Differentiate Among Alternative Theories of Trade.” The Canadian Journal of Economics.

Evenett, Simon J. and Wolfgang Keller. 1998. “On Theories Explaining the Success of the Gravity Equation.” NBER Working Paper.

Trefler, Daniel. 1995. “The Case of the Missing Trade and Other Mysteries.” American Economic Review.

Anderson, James and Eric van Wincoop. 2003. “Gravity with Gravitas: A Solution to the Border Puzzle.” American Economic Review.

Novy, Dennis. 2012. “Gravity Redux: Measuring International Trade Costs with Panel Data.” Economic Inquiry.

Eaton, Jonathan and Samuel Kortum. 2002. “Technology, Geography, and Trade.” Econometrica.

Donaldson, David. 2011. “Gravity Models.” No Journal—powerpoint.

Rossi-Hansberg, Esteban. 2005. “A Spatial Theory of Trade.” American Economic Review.

Chaney, Thomas. 2008. “Distorted Gravity: The Intensive and Extensive Margins of International Trade.” American Economic Review.

Anderson, James E. 1979. “A Theoretical Foundation for the Gravity Equation.” American Economic Review.

Video: The Gravity Equation and the Costs of Trade.

 

VI. Offshoring and factor prices

No Author. “Trade and Factor Prices” (powerpoint)

Feenstra, Robert C. 2008. “Offshoring in the Global Economy.” Ohlin Lecture Series.

Grossman, Gene M. and Esteban Rossi-Hansberg. 2006. “The Rise of Offshoring: It’s Not Wine for Cloth Anymore.” Federal Reserve Bank of Kansas City.

Grossman, Gene M. 2008. “Trading Tasks: A Simple Theory of Offshoring.” American Economic Review.

Donaldson, David. 2011. “Trade and Labor Markets.” powerpoint.

Khandelwal, Amit. 2009. “The Long and Short (of) Quality Ladders.” Review of Economic Studies.

Bernard, Andrew B., Stephen J Redding, and Peter K. Schott. 2012. “Testing the Factor Price Equality with Unobserved Differences in Factor Quality or Productivity.” U.S. Census Bureau Working Paper.

Baldwin, Richard. 2011. “How Trade and Industrial Organization After Globalization’s 2nd Unblundling: How Building and Joining a Supply Chain are Different and Why it Matters.” NBER Working Paper.

Videos: Factor price equalization, Specific Factors Models, Economics of Offshoring, The Rybczynski Theorem, Trade, Investment, and Migration as Substitutes, Unbundling the Supply Chain.

 

VI. Trade in economic history

Blecker, Robert A. 1997. “The ‘Unnatural and Retrograde Order’: Adam Smith’s Theories of Trade and Development Reconsidered.” Economica.

Irwin, Douglas. 2002. “Interpreting the Tariff-Growth Correlation of the Late Nineteenth Century.” American Economic Review.

Irwin, Douglas. 2002. “Did Import Substitution Promote Growth in the Late Nineteenth Century?” NBER Working Paper.

Clemens, Michael A. and Jeffrey G. Williamson. 2001. “A Tariff-Growth Paradox? Protection’s Impact on the World Around 1875-1997.” NBER Working Paper.

John Nye, “The Myth of Free Trade Britain and Fortress France,” Journal of Economic History, 1991.

Harrison, Ann and Andres Rodriguez-Clare. 2009. “Trade, Foreign Investment, and Industrial Policy for Developing Countries.” NBER Working Paper.

Irwin, Douglas. 1997. “From Smoot-Hawley to Reciprocal Agreements: Changing the Course of U.S. Trade Policy in the 1930s.” NBER Working Paper.

Irwin, Douglas. 1998. “The Smoot-Hawley Tariff: A Quantitative Assessment.” The Review of Economic Statistics.

Crowley, Meredith A. and Xi Luo. 2011. “Understanding the Great Trade Collapse of 2008-09 and the Subsequent Trade Recovery.” Journal of Economic Perspectives.

Gopinath, Gita and Oleg Itskhoki. 2009. “Trade Prices and the Global Trade Collapse of 2008-2009.” NBER Working Paper.

Francois, Joseph and Julia Woerz. 2009. “The Big Drop: Trade and the Great Recession.” No Journal, article online.

Videos: Corn Law debates, Friedrich List, Robert Torrens on sliding tariffs, The deindustrialization of India, Tariffs and Growth in the late 19th Century, South Korea and Industrial Policy, The Smoot-Hawley Tariff, Why Did Trade Plummet in the Great Recession?

 

VII. FDI and multinationals

Blonigen, Bruce A. 2005. “A Review of the Empirical Literature on FDI Determinants.” NBER Working Paper.

Ramondo, Natalia and Andres Rodriguez-Clare. 2009. “Trade, Multinational Production, and the Gains from Openness.” NBER Working Paper.

Antras, Pol and Stephen R. Yeaple. 2013. “Multinational Firms and the Structure of International Trade.” NBER Working Paper.

Videos: Basics of multinational corporations, Intra-firm Trade, Intra-industry Trade, Gains from Multinationals, Who Gains from FDI?, Productivity in firms, Foreign investment in India, Competition from foreign retailers, What is a Maquiladora? Introduction to NAFTA, NAFTA and Mexican Agriculture, The Effect of NAFTA on the Mexican Economy.

 

VIII. The politics of trade

Grossman, Gene M. and Elhanan Helpman. 1994. “Protection for Sale.” American Economic Review.

Goldberg, Pinelopi Koujianou and Giovanni Maggi. 1999. “Protection for Sale: An Empirical Investigation.” American Economic Review.

Mayda, Anna Maria and Dani Rodrik. 2005. “What are Some People (and Countries) More Protectionist than Others?” European Economic Review.

Grossman, Gene M. and Elhanan Helpman. 1995. “The Politics of Free-Trade Agreements.” American Economic Review.

Harrison, Ann and Jason Scorse. 2010. “Multinational and Anti-Sweatshop Activism.” American Economic Review.

Videos: The Political Economy of Tariffs, Does Trade Help the Environment?, Regulation as a Major Trade Barrier, Who Supports Free Trade?, The Cultural Diversity Critique of Markets.

 

Competency-based transcripts

Why not I say?:

Students who enroll in a new competency-based program at Northern Arizona University will earn a second transcript, which will describe their proficiency in the online bachelor degree’s required concepts. The university will also teach students how to share their “competency report” transcripts with potential employers.

The university shared a sample version of a competency report. The document looks nothing like its traditional counterpart, and lacks courses or grades.

Here is more.

The stimulus that is Russian

A business owner in Russia has a better chance of ending up in the penal colony system once known as the gulag than a common burglar does.

More than 110,000 people are serving time for what Russia calls “economic crimes,” out of a population of about three million self-employed people and owners of small and medium-size businesses. An additional 2,500 are in jails awaiting trial for this class of crimes that includes fraud, but can also include embezzlement, counterfeiting and tax evasion.

But with the Russian economy languishing, President Vladimir V. Putin has devised a plan for turning things around: offer amnesty to some of the imprisoned business people.

And this:

In 2010, the police investigated a total of 276,435 “economic crimes,” according to the Russian prosecutor general’s office, whose statistics show burglary and robbery are prosecuted less than economic crimes.

…Russia’s infamous penal colonies, rural camps swirled in barbed wire, appear today much as they did when Aleksandr Solzhenitsyn wrote “The Gulag Archipelago” in the 1960s. But at least one of every 10 prisoners today is a white-collar convict.

And why are so many businessmen in prison?

…in Russia, the police benefit from arrests. They profit by soliciting a bribe from a rival to remove competition, by taking money from the family for release, or by selling seized goods. Promotion depends on an informal quota of arrests. Police officers who seize businesses became common enough to have earned the nickname “werewolves in epaulets.”

There is more here, interesting throughout.

Against subjectivism (and for taxonomy)

Aristotle Circle, the company that employs Vanessa and was co-founded by Ms Rheault in 2008, sells an ERB preparation workbook with sample test questions in it such as “Apples and oranges are both . . . ”. Children get two points for “fruit”, one for “sweet things I eat” and none for “yummy”.

The bulk of its business is providing tutors at $350 an hour, who prepare children for the tests, and admissions experts for parents desperate for information. But demand for play date instruction is increasing.

That is to help get your children into the best private schools.  There is more here.

The origins of the Forbes 400

Here is another interesting passage from the newly published Kaplan and Rauh paper “It’s the Market: The Broad-Based Rise in the Return to Top Talent“:

…the percent [of the Forbes 400] that grew up wealthy fell from 60 to 32 percent while the percent that grew up with some money in the family rose by a similar amount.  The percent who grew up with little or no wealth remained about flat.

That is from 1982 to 2011, by the way.  The overall tendency is this:

Overall, Figures 5 and 6 show a trend in the Forbes 400 list away from people who grew up wealthy and inherited businesses towards those who grew up with more modest wealth in the family and started their own businesses.  These changes largely occurred between 1982 and 2001…

Access to education also appears to be of increasing importance.  The share of the Forbes 400 who graduated from college rose from 77 to 87 percent between 1982 and 2011.  The share of college dropouts (like Bill Gates and Mark Zuckerberg) also rose from 6 to 8 percent.  At the same time, the share of those without any college dropped markedly from 17 to 5 percent.

I view it this way.  Generational connections now matter less and starting with lots of working capital matters less.  Smarts, drive, and education all matter more.