Tyler Cowen's Blog, page 379

The culture that is Washington

The Senate has severely scaled back the Stock Act, the law to stop members of Congress and their staff from trading on insider information, in an under-the-radar vote that has been sharply criticised by advocates of political transparency.

The changes, if they become law, will exclude Congressional and White House staff members from having to post details of their shareholdings online. They will also make online filing optional for the president, vice-president, members of Congress and congressional candidates.

The House was expected to pass a similar bill on Friday.

Here is the FT article, here are other sources.  Some officials suggested that transparency “could threaten national security,” more detail on that here.  Here are some further interesting details.

What if we all died at forty?

Akka emails me:

I think one of the things that make planning (and living) life so hard is the combination of the facts  that

Its end date is uncertain
It is rather highly likely that one’s faculties will be duller towards the end.

If it was certain that when we sleep on our 40th birthday, we wouldn’t wake up, how different would the world be? Economically? Culturally? Will it be more peaceful? More left leaning?

One question is how child-bearing norms will evolve.  There will be considerable pressure to have kids at age eighteen or so.  (It might be considered unethical to have a child at age thirty-five, although if the fertility rate falls enough the economy might shift heavily into orphanages and this could be considered virtuous nonetheless.)  I predict many people would become much stricter in their morals and more religious, and they will have children quite early.

Other people would attempt to maintain a collegiate lifestyle through their death at age forty.  There would be a polarization of outcomes and approaches to life.  Old age as an equalizer, and as an enforcer of responsible savings behavior, would be gone.

The likelihood of warfare would rise, if only because the sage elderly won’t be around and male hormones will run rampant.

Credit would be harder to come by and the rate of home ownership would fall.  The rate of voting turnout will go down, as would the degree of wealth inequality and the amount of innovation.  Federal discretionary spending, as a percentage of the budget, would rise.

We can look at data from Huntington’s Disease, for instance see the Oster, Shoulson, and Dorsey paper.  Only five to ten percent of potential carriers choose to learn whether they will have the disease, even though the cost of the test is low.  That suggests knowledge of a finite horizon is itself costly and a source of discomfort.  Those who learn they will encounter bad fates from the disease are more likely to divorce, more likely to get pregnant, and much more likely to report significant financial changes and changes in recreational activities.  Of course these are solo individuals embedded in societies with normal life expectancies; if everyone were to meet an early untimely end I believe the (partial and polarized) shift toward conservative and religious norms would be much stronger.

Australia to Compensate Organ Donors

Australia once again proves that it is a world leader in innovative public policy with an experimental plan to compensate (living) organ donors.

Workers who want to donate a kidney will be offered up to six weeks’ paid leave under a federal government plan to reduce the waiting list for life-saving organs.

Health Minister Tanya Plibersek and parliamentary secretary for health and ageing Shanye Neumann say the government will put up $1.3 million over two year for a trial that will be reviewed in 2015.

Ms Plibersek says living donors will be paid six weeks on minimum wage, totalling up to $3600, to help take the financial pressure off before and after the major surgery.

…the scheme is one step towards bridging the gap between the number of kidney donors and recipients.

The proposed experiment does, however, contains a peculiar restriction which is worth highlighting because it illustrates a tension between economics and ethics, at least ethics as conventionally understood (e,g, Michael Sandel). The compensation “will only be available to donors who have a job.”

The idea, I believe, is to avoid any hint of “exploitation” or “pecuniary coercion.” The problem is that another word for pecuniary coercion is incentive. Thus, the goal is to increase the supply of organs without creating an incentive to supply organs, at least not a strong incentive. To help navigate this invisible line the amount paid is low and the only people who can receive compensation are the ones who don’t need the money. In short, the plan discriminates against the unemployed so that no one can accuse the government of exploiting the unemployed by giving them too much money.

Nevertheless, although the amount is small and restricted, Australia’s willingness to experiment with the idea of compensation in order to save lives is laudable and potentially groundbreaking.

Hat tip: Andrew Leigh.

Addendum: For other innovative approaches to the worldwide shortage of transplant organs see my articles here and here.

Edward Luce has lunch with Michael Sandel

I ask Sandel whether he does anything in his own life to make the world less money-minded. He begins a couple of answers but peters out. I suggest that he makes all his lectures free online. “Yes, that’s one thing,” he agrees. After our lunch I see that Sandel is listed on Royce Carlton, a speaker’s agency, as one of its big names (without apparent irony, a posting by the agency last year said Sandel was available to lecture “at a reduced fee in conjunction with his new book, What Money Can’t Buy”).

The rest of the meal is presented here, possibly behind an FT gate; Sandel opted for Legal Seafood and Luce ordered fish and chips.

Does anyone give money to charity efficiently?

Scott Alexander meets up with Robin Hanson and reports from the front:

Then Robin Hanson of Overcoming Bias got up and just started Robin Hansonning at everybody.

…One of his claims that generated the most controversy was that instead of donating money to charity, you should invest the money at compound interest, then donate it to charity later after your investment has paid off – preferably just before you die, since donating money after death is legally complicated. His argument, nice and simple, was that the real rate of return on investment has been higher than the growth rate for 3000 years and this pattern shows no signs of changing. If you donate the money today, your donation grows with the growth rate, but if you invest it, it grows with the interest rate. He gave his classic example of Benjamin Franklin, who put his relatively meager earnings into a trust fund to be paid out two hundred years later; when they did, the money had grown to $7 million. He said that the reason people didn’t do this was that they wanted the social benefits of having given money away, which are unavailable if you wait until just before you die to do so.

…Then he started talking about how you should only ever donate to one charity – the most effective. I’d heard this one before and even written essays speaking in favor of it, but it’s always been very hard for me and I’ve always chickened out. What Robin added was, once again, a psychological argument – that the reason this is so hard is that if charity is showing that you care, you want to show that you care about a lot of different things. Only donating to one charity robs you of opportunities to feel good when the many targets of your largesse come up and burdens you with scope insensitivity (my guess is that most people would feel more positive affect about someone who saved a thousand dogs and one cat than someone who saved two thousand dogs. The first person saved two things, the second person only saved one.) In retrospect this is absolutely true and my gibbering recoil at this problem isn’t just Yet Another Cognitive Bias but just good old self-interest.

The post is interesting throughout, and the hat tip goes to Geoffrey Miller, @MatingMind.

Good sentences about China

From Karl Smith:

China at some points has had investment rates of in excess of 40% of GDP. For super-geeks this exceeds the Ramsey Rule at a zero discount rate. For non-geeks it means that there is no investment strategy under which this is the profitable thing to do.

Its always hard to tell but on balance I think the Chinese government is aware of this, yet is willing to lose money on its capital investments in order to provide jobs for people moving to the city. This is a smart move if you think cities produce agglomeration effects.

With apologies to the less wonkish, China is using physical capital as a loss leader in order to grow cities that will produce network effects will in turn foster the human capital that really makes a country rich.

In this way China has become like Amazon’s Jeff Bezos, a Destroyer-of-Worlds.1 You can’t win a physical capital accumulation battle against someone whose plan is to overinvest and lose money on the physical capital.

That is speculative of course but nonetheless worth a ponder

Assorted links

1. How to follow new bird flu developments.

2. .

3. Overview of Tony Judt.

4. What can Scotland learn from Latin America?

5. Where did Haitian aid money go?

Buried treasure in clickthrough agreements

Do you know anyone who stops to read “click-through” agreements on websites in the middle of performing a task? One company, PC Pitstop, deliberately buried a clause in its end-user license agreement in 2004, offering $1,000 to the first person who emailed the company at a certain address. It took five months and 3,000 sales until someone claimed the money. The situation hadn’t improved by 2010 when Gamestation played an April Fools’ Day joke by embedding a clause in their agreement saying that users were selling them their souls.

Here is another good bit:

Ponder the fact that a dermatologist must sign his name to forms almost 30,000 times a year, according to a 2008 article in the Southern Medical Journal.

The article is here and for the pointer I thank Olaf.

Quality institutions and growth are not so well-connected

Here is a passage from a new paper from Lant Pritchett and Eric Werker:

One of the puzzles to be reconciled is that although “institutions” are associated with long run growth rates, their predictive power for short-to medium-run (5 to 10 years) growth, or for growth accelerations is very weak. (Khan, 2007) makes the distinction between “market supporting governance” versus “growth promoting governance.” He points out that, while “governance” measures are correlated with levels of GDP per capita, there is little or no predictive power of the current level of institutions for future growth rates.

We illustrate this by comparing the level of income and a measure of “governance” versus the growth rate and that same measure of governance and the growth rate and the change in the measure of governance. Whereas the first is strong the second is quite weak and the third near zero.

…Essentially all rich countries have reasonably high “quality of government” and all countries with high “quality of government” are rich.

…But among countries with the same governance there are massive differences in growth (e.g. China versus Cote d’Ivoire) and countries with rapid growth (above .6) the ‘quality of government’ ranking ranges from .15 (Indonesia) to .9 (Singapore).

…Figure 7c shows there is no link at all between the improvement in ‘quality of government’ and economic growth 1984 to 2004. A country like Uganda has massive improvement but exactly average growth, China has massive growth and no improvement at all, Malaysia saw QOG worsen but growth well above average, etc.

The relevant figures start at around p.30.  Was it Jeff Sachs who put it this way?: Go back to 1960 and try to measure the quality of institutions any way you wish, knowing of course in advance which countries end up doing well.  Can you find any measure at all which predicts subsequent growth?  This is a tough problem for we economists.

There is another sense in which institutions have to be the causal factor, in which case we are very far from having a sense of how to measure good institutions.

Why the U.S. helps defend South Korea and what can go wrong

It is not because we need to subsidize their defense per se, to cite one argument which some non-interventionist critics have attacked.  It is so, when North Korea behaves in a ridiculous manner, the South can respond (not respond) with great restraint.  What we are subsidizing is a) a feeling of security, and b) not building nuclear weapons in response.  We do something broadly similar for Japan.

The potential problem is when the same U.S. acts which produce a feeling of security in South Koreans produce a feeling of insecurity in North Korean leaders.  And the broader game we are playing, with numerous allies, means we might end up pushing some individual confrontations  beyond an optimal point (e.g., how would Israel respond with Iran if we wavered on South Korea?)  Might we have to overinvest in the South Korean feeling of security — from a strictly Korean peninsula point of view — to keep Japan, Israel, Taiwan, the Saudis, and others “in line”?

It would be good if the North Korean leadership would read this blog post, as they would then realize that what to their eyes appears to be American “overstepping” is done for the sake of other audiences.  It is problematic for the American government to itself communicate this point.  Imagine announcing “we don’t stand by South Korea as much as it appears, we are just doing this because Israel faces a signal extraction problem and we can somewhat sway their inference toward relaxing about their own security situation.”

It would be bad if the Saudi leadership would read this blog post (or understand this to begin with).  The American government would then have to produce a feeling of security for South Korea all the more.