Tyler Cowen's Blog, page 417

Steve Teles on kludgeocracy

This is a very interesting essay, here is one bit:

While liberals are harmed by the opacity of kludgeocracy’s successes, conservatives are hurt by the lack of traceability of its failures. The fact that so much of our welfare state is jointly administered — either inter-governmentally or through contracting with private agents — makes it hard for Americans to attribute responsibility when things go wrong, thus leading blame to be spread over government in general, rather than affixed precisely, where such blame could do some good. The consequence of complexity, then, is diffuse cynicism, which is the opposite of the habit needed for good democratic citizenship.

And this:

The last thirty years of American history have witnessed, at least rhetorically, a battle over the size of government.1 Yet that is not what the history books will say the next thirty years of American politics were about. With the frontiers of the state roughly fixed, the issues that will dominate American politics going forward will concern the complexity of government, rather than its sheer size.

There are many interesting points in this piece (pdf), with some comments from Reihan.

Albert O. Hirschman: Life and Work

Albert O. Hirschman has passed away. Hirschman was a deep thinker whose work has been influential in many fields. Most famously with the must-read Exit, Voice and Loyalty. I am also a fan of The Passions and the Interests his study of ideological transformations in the 17th and 18th century which promoted the pursuit of material interests as a way to tame the passions and thus opened the way to capitalism (profitably read alongside McCloskey’s Bourgeois Virtues). Hirschman’s early work in development, on backwards and forwards linkages, is now being rediscovered and formalized. Tyler looks at Hirschman’s work as it relates to development in a video at MRUniversity. Tyler also wrote in 2006:

Albert Hirschman deserves a Nobel Prize in economics.  His early work on the unbalanced nature of economic development was pathbreaking.  The Rhetoric of Reaction is a brilliant study in intellectual self-deception.  As a historian of thought he integrates wonderfully, such as in his study of how commerce shapes mores.

But he would win the Prize for focusing the attention of economists and political scientists on the phenomenon of voice: the ability of consumer or voter complaints to induce improvements in supply.  Hirschman was the first modern social scientist to think about this mechanism systematically.

Hirschman first suggested voice gets stronger and more effective when exit is limited.  In his (earlier) vision, if you can leave you won’t complain.  Fidel Castro understood this and let many Cubans go, although of course they complained from Florida.  It is sometimes suggested that in a world of school vouchers fewer parents would show up at the school board meeting.  Don’t yap, just yank your kid.

In reality voice often works best when competitive pressures are strong.  HBO is more responsive than was East Germany.  You are not wasting your time to complain at Wegman’s, or for that matter at this blog.  Competition and voice are more likely complements than substitutes.  Hirschman admitted and indeed emphasized this point in his later writings.

Here is Paul Krugman on Hirschman….Here is Alex on the topic of voice.

Hirschman also led a fascinating life. He became a professor only late in life after fighting in the Spanish Civil War, volunteering in the French Army and working in Marseilles to help refugees escape the Nazis. His work in development economics was based on field work when field work still meant working in fields.

As he once said of his work and perhaps also of his life:

Attempts to confine me to a specific area make me unhappy.

Daniel Drezner at the FP annually gives out an award he affectionately calls the Albie. It’s an award for

…any book, journal article, magazine piece, op-ed, or blog post published in the [last] calendar year that made you rethink how the world works in such a way that you will never be able “unthink” the argument.

It’s a fitting award to be named for Albert Hirschman whose simple but powerful ideas do indeed cause you to rethink the world and never to see it the same again.

Mumbai vulture sentences

The cost of building the aviaries and maintaining the vultures is estimated at $5 million spread over 15 years, much less expensive than it would have been without the ready supply of food.

“Most vulture aviaries have to spend huge sums to buy meat, but for us that’s free because the vultures will be feeding on human bodies — on us,” Mr. Mehta said.

Here is more, interesting throughout, and for the pointer I thank Apoorv Trivedi.

Addendum: Here is further commentary on this story.

Assorted links

1. Division of labor is limited by the extent of the market, impala and Oxpeckers edition.

2. Paper towels vs. air dryers.

3. The switch to capitalism was not the main cause of Russia’s mortality crisis.

4. On-line medical consultation.

5. How to escape from North Korea and why you should.

Questions that are rarely asked (development economics and anarchism)

From Chris Blattman:

Sympathetic readers, I am curious: What would be on your anarchist development reading list?

Blattman mentions the works of James C. Scott, which I would second.  There are some papers by Peter Leeson, including his treatment of Somalia, and related suggestions from Boettke here including links to the Leeson papers and also to Claudia Williamson.

Jane Jacobs.  Spencer McCallum.  Donald Lavoie’s National Economic Planning: What is Left?.  David Friedman on Iceland, and Joseph Peden on medieval Ireland.  Proudhon, and the Eric Frank Russell version of left anarchism, as found in The Great Explosion.  Auberon Herbert and Gustav de Molinari.  Kropotkin on mutual aid.  Proudhon and also Chomsky.  Karl Hess and Kirkpatrick Sale.  And don’t forget Red Sun: Travels in Naxalite Country.

Surely I am forgetting a great deal.

Offshoring and Directed Technical Change

That will have been one of the most important papers of this year and it is by Daron Acemoglu, Gino Gancia, and Fabrizio Zilibotti.  Read every sentence of the abstract carefully because each one matters!:

To study the short-run and long-run implications on wage inequality, we introduce directed technical change into a Ricardian model of offshoring. A unique final good is produced by combining a skilled and an unskilled product, each produced from a continuum of intermediates (tasks). Some of these tasks can be transferred from a skill-abundant West to a skill-scarce East. Profit maximization determines both the extent of offshoring and technological progress. Offshoring induces skill-biased technical change because it increases the relative price of skill intensive products and induces technical change favoring unskilled workers because it expands the market size for technologies complementing unskilled labor. In the empirically more relevant case, starting from low levels, an increase in offshoring opportunities triggers a transition with falling real wages for unskilled workers in the West, skill-biased technical change and rising skill premia worldwide. However, when the extent of offshoring becomes sufficiently large, further increases in offshoring induce technical change now biased in favor of unskilled labor because offshoring closes the gap between unskilled wages in the West and the East, thus limiting the power of the price effect fueling skill-biased technical change. The unequalizing impact of offshoring is thus greatest at the beginning. Transitional dynamics reveal that offshoring and technical change are substitutes in the short run but complements in the long run. Finally, though offshoring improves the welfare of workers in the East, it may benefit or harm unskilled workers in the West depending on elasticities and the equilibrium growth rate.

In this paper you will find a ray of hope, namely “…when the extent of offshoring becomes sufficiently large, further increases in offshoring induce technical change now biased in favor of unskilled labor because offshoring closes the gap between unskilled wages in the West and the East, thus limiting the power of the price effect fueling skill-biased technical change.”

And this:

The unequalizing impact of offshoring is thus greatest at the beginning. Transitional dynamics reveal that offshoring and technical change are substitutes in the short run but complements in the long run.

Of course we will see, but if you wish to be ahead of the game, spend your time pondering those propositions.  Ungated copies are here.

The truly clever will solve this model for some analogous propositions about robots.

“Did the Community Reinvestment Act (CRA) Lead to Risky Lending?”

The first sentence of the abstract of this paper reads “Yes, it did.”  Please don’t take this as support for whackier theories of the cause of the crisis, but as to whether this was an amplifying mechanism, well it seems it was.  I have never myself been obsessed with this question, or pushing the significant relevance of the CRA theories, but earlier this received so much attention in the blogosphere, and it led to so many excoriations, I thought I would pass this new result along.

An ungated copy is here.

Israel notes

The food is quite good, as is the gelato.  Don’t forget the Libyan, Ethiopian, and Yemeni offerings.

Poverty is more evident than I had expected, and one wonders whether extreme Israeli income inequality is a harbinger of a broader global future.  A simple, small bottle of mouthwash costs about $10.  It is surprising, for this American, to see beggars wearing yarmulkes.

How much of the high cost of living here is from inefficient retail and consolidation?  How much from “the Island effect”?  Since the locals feel the high costs too, we cannot rely on the productivity of the tradeables sector as an explanation.  As for the rent, when it comes to construction permits, Israel ranks #137 (!, pdf) on the World Bank’s Doing Business Index.  Yet the quality of the construction is often somewhat ramshackle, although I expect the Wall and the Iron Dome to last for some while.

Cost of living aside, I imagine living in Tel Aviv as quite pleasant, and I prefer it to most of the other Mediterranean cities I have visited.  The Israel Museum in Jerusalem displays its collection wonderfully.

This place is now a preliminary R&D laboratory for good U.S. TV shows.  Hani Furstenberg is Israeli, it turns out, and Tel Aviv has been named the world’s #2 city for high-tech start-ups.

I am basing this following comment on a limited sample, but so far I have found this country to have a disproportionately large share of taxi drivers who are Jewish, at least compared to anywhere else I have visited.

The Segway seems to have some commercial viability in Israel.

Sometimes the security question consists simply of “Do you have a weapon?”  I do not.

Against my expectation, Jerusalem is a more populous city than Tel Aviv.

Natasha cannot pass for an American here.

Assorted links

1. Iris-scanning in the fight against Indian poverty.

2. Amazing Kreskin offers to fix the fiscal cliff.

3. An Edge talk with Philip Tetlock, and pre-registration for the forecasting website.  Forecasters are needed for his very important project.

4. David Warsh on Shapley and other stuff.

5. Some catfish kill pigeons, and how good were cavemen as animal artists?

India, India, India!

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Today at MRUniversity we release the first of our country sections, India. In nearly 50 videos we cover key aspects of India’s history, economics, politics and culture from the viewpoint of development economics. Among the topics are India’s Early Growth History, Gandhi and the Salt March, the Green Revolution, Food Crises and the Media, the Rise of Private Education in India, and the Economics of Bollywood.

Tyler and I will both be in Delhi on Thursday December the 20th to talk to students of MRUniversity and others about economics, development and the future of online education. Information on times and places to follow.

By the way, for those of you taking the Development Economics course the India material is bonus to be sampled at will – this won’t be on the exam!

MRU also introduces new features this week including user contributions of links, videos and other materials directly from the video pages, ordering of questions by votes or recency and easier ways to see and access related materials and user contributions.