Tyler Cowen's Blog, page 424

Mexico facts of the day

Six years ago, Mexico was the world’s ninth largest exporter of cars. Today the country is ranked fourth—behind Germany, Japan and South Korea—with exports expected to total more than 2.14 million vehicles this year.

One in 10 cars sold last year in the U.S. was made in Mexico. Next year, every new taxi in New York’s fleet—made by Nissan Motor Co.  —will carry the “Hecho en Mexico” label. Mexico is now exporting vehicles to China, and even helped Japan keep up with orders after last year’s tsunami.

Mexico’s Economy Minister Bruno Ferrari boasted that a batch of new factories planned by car makers will help Mexico surpass South Korea in a few years.

Here is more.

David Brooks on the conservative future

It is an excellent column and here is one good bit:

Soft Libertarians. Some of the most influential bloggers on the right, like Tyler Cowen, Alex Tabarrok and Megan McArdle, start from broadly libertarian premises but do not apply them in a doctrinaire way.

Many of these market-oriented writers emphasize that being pro-market is not the same as being pro-business. Luigi Zingales of the University of Chicago published an influential book, “A Capitalism for the People,” that took aim at crony capitalism. Tim Carney of The Washington Examiner does muckraking reporting on corporate-federal collusion. Rising star Derek Khanna wrote a heralded paper on intellectual property rights for the House Republican Study Committee that was withdrawn by higher-ups in the party, presumably because it differed from the usual lobbyist-driven position.

There are additional shout outs to many other writers I admire (and like).  And this:

Most important, they matured intellectually within a far-reaching Web-based conversation. In contrast to many members of the conservative political-entertainment complex, they are data-driven, empirical and low-key in tone.

But do read the whole thing.

Addendum: Paul Krugman comments.

The High Price of False Security

Charles Kenny has an excellent piece in Bloomberg BusinessWeek about security:

The attention paid to terrorism in the U.S. is considerably out of proportion to the relative threat it presents. That’s especially true when it comes to Islamic-extremist terror. Of the 150,000 murders in the U.S. between 9/11 and the end of 2010, Islamic extremism accounted for fewer than three dozen. Since 2000, the chance that a resident of the U.S. would die in a terrorist attack was one in 3.5 million, according to John Mueller and Mark Stewart of Ohio State and the University of Newcastle, respectively. In fact, extremist Islamic terrorism resulted in just 200 to 400 deaths worldwide outside the war zones of Afghanistan and Iraq—the same number, Mueller noted in a 2011 report (PDF), as die in bathtubs in the U.S. alone each year.

…According to one estimate of direct and indirect costs borne by the U.S. as a result of 9/11, the New York Times suggested the attacks themselves caused $55 billion in “toll and physical damage,” while the economic impact was $123 billion. But costs related to increased homeland security and counterterrorism spending, as well as the wars in Iraq and Afghanistan, totaled $3,105 billion.

Matt Yglesias adds a good point:

Something that I would love to see the Transportation Security Administration, the FBI, the CIA, and whoever else do is pull together an estimate of how many airplanes they think would have been blown up by terrorists if there was no passenger or baggage screening whatsoever. One way of thinking about it is this. If commercial airplanes were no more secure than your average city bus, planes would be blown up as frequently as city buses—which is to say never. I’ve heard some people postulate that terrorists have a special affection for blowing up planes, but I’m not sure that’s right. In the not-too-distant past, Israel had a substantial terrorists-blowing-up-buses problem and had to take countervailing security measures. But unlike Israel, we’re not doing anything to secure our buses. It’s at least possible that nobody blows up American buses because nobody is trying to blow anything up.

I would also add to the monetary costs the price of lost civil liberties and a populace that has sadly grown accustomed to government surveilling, scanning, and groping. As I said some years ago when visiting Independence Hall, the price of eternal vigilance is liberty.

Which James Bond villain plan made the most economic sense?

I suspect Tim Harford knew I would blog this when he tweeted this piece.  It starts with this:

We looked through their schemes, and asked Jean-Jacques Dethier [TC: link is mine], a development economist at the World Bank (and a lifelong Bond fan), what he thought.

And then:

Goldfinger

Plot: Gold tycoon Auric Goldfinger’s (Gert Frobe) plan is quite simple: He wants to attack the U.S. Bullion Depository in Fort Knox and detonate an atomic bomb, thus irradiating the gold stored there, rendering it worthless for decades. This will in turn increase the value of Goldfinger’s own gold and cause economic chaos in the Western world.

Plausibility: “This looks plausible to me,” says Dethier…

I must disagree.  First, it requires an upward-sloping marginal cost curve for gold production, including the flow out of commodity uses.  That’s actually plausible, but should death-risking criminal schemes rely on that?  Second, if you are going to blow up some gold, don’t blow up the gold held as an endowment, blow up some gold which might go on the market.  Third, couldn’t governments in response simply increase the capital gains rate on gold sales?  In any case just setting off a dirty bomb probably would spike the gold price more than blowing up some gold.  Or how about this criminal strategy?: hold on to the gold and perhaps in due time it will go up from $35 to the unthinkable level of $200 or $300 an ounce.

And there is yet another complication.  At that time the U.S. was (sort of) on a gold standard!  Admittedly ability to redeem was quite limited and held by foreigners who were themselves having their arms twisted not to redeem.  Still, what if the price of gold doesn’t go up (denominated in terms of what?  most of the major currencies are then fixed not floating) but the U.S. price level goes down?  Why use bombs to try to manipulate the price which is about the hardest to budge in the direction which is hardest to get it to budge in?  What if only quantities adjust?  And so on.  Wouldn’t an inflationary scheme have been easier to implement?  I am not convinced Gert Frobe was a stellar macroeconomist.

I see this alternative scheme as potentially more effective, and Dethier seems to go along with it as well:

Casino Royale

Plot: Before Bond foils him (and forces him into a high-stakes underground poker game), Le Schiffre (Mads Mikkelsen) is shorting airline stocks, while simultaneously planning to destroy a prototype luxury jetliner on its maiden voyage. That will then drive airline stocks down, allowing him to make millions.

If your productivity is especially high today, go over to Twitter and try #KrugmanBondFilms.

Comprar una casa obtener una visa

It appears that the “buy a house, get a visa” program that I have long advocated will soon been implemented…in Spain.

Spain has between 700,000 and 1.1 million unsold new homes following the collapse of its real estate market in 2008 with an estimated third of them being designed as holiday homes in coastal tourist areas

…Spain plans to offer foreigners residency permits if they buy houses worth more than 160,000 euros, in a desperate attempt to reduce the nation’s glut of unsold property.

…The scheme would also allow foreign buyers to move around the 25-nation Schengen zone freely, as the agreement allows holders of a residency permit of one country in the area to travel to – though not work in – any other.

160,000 euros is the national average price of a property in Spain and that is only $200,000. Spain has some beautiful coastal property and a nice apartment in Barcelona can be had for a bit more. The time to buy could be soon.

Gaolbalization offshoring markets in everything the culture that is Dutch (Belgian)

Belgium and the Netherlands have an interesting arrangement, an example of economics and incentives working clearly in the public law field. Belgium has more convicts than it can accommodate in its prisons. Neighboring Netherlands has the opposite problem: not enough prisoners. Several years ago, it was facing having to shutter some facilities. But then the two countries made a deal: Belgium rents space for its inmates in Dutch jails, patrolled by Dutch corrections guards. (Perhaps the Flemish hope they can be “transferred” to Dutch custody as well, or at least out of Belgium.)

Here is more, from Eugene Kontorovich, pointer from the estimable Chug.

Why so many men’s suits for the communists?

David Stearns asks:

I was looking at Kim Jonh-Il looking at things, and it struck me how many of his hangers on were wearing suits.  It seems odd given that this is probably the most anti-western country around.  Do you have any ideas on why this style of formalwear basically became the world standard?

Of course the Chinese communists experimented with other styles. Yet pushback came; in 2008, one part of the Chinese Communist Party began an anti-pajamas campaign, on the grounds they looked “uncivilized.”

Here is a rather frank web site on etiquette campaigns in China.  Recently, Chinese leaders seem to prefer red ties.

I would stress that non-free states tend to encourage conformity along many dimensions, and what better code of dress to match conformity into than men’s suits?

Assorted links

1. Shapin reviews Monk on Oppenheimer.

2. The original Twinkie had banana filling, until WWII rationing.

3. Wikipedia on Gaza Strip, and a Stratfor analysis of Gaza, and a Foreign Affairs piece.

4. What do animals want?, and monkeys want to ride on capybara.

5. Can the unconscious mind solve math problems?

Don’t Mess with the Mouse

On Saturday the House Republican Study Committee released a radical but sensible position paper on copyright that called for limiting statutory damages (which are typically far higher than actual damages), expanding fair use exceptions, punishing false copyright claims and limiting terms. The position paper included good material on how to interpret copyright law such as:

Myth: The purpose of copyright is to compensate the creator of the content:

…according to the Constitution, the overriding purpose of the copyright system is to “promote the progress of science and useful arts.” In today’s terminology we may say that the purpose is to lead to maximum productivity and innovation.

This is a major distinction, because most legislative discussions on this topic, particularly during the extension of the copyright term, are not premised upon what is in the public good or what will promote the most productivity and innovation, but rather what the content creators “deserve” or are “entitled to” by virtue of their creation. This lexicon is appropriate in the realm of taxation and sometimes in the realm of trade protection, but it is inappropriate in the realm of patents and copyrights.

The paper also made a number of excellent points about how too much copyright can impede innovation and how rent seekers may come to dominate the process.

Mike Masnick and Cory Doctorow called the report “a watershed moment,” and there was lots of discussion on twitter and elsewhere about how this represented a Republican move towards recapturing youth and reasserting support for markets and innovation over business interests.

Alas, it was not to be. Within 24 hours the report was yanked. It doesn’t take much inside knowledge to guess what happened  It does give me some pleasure, however, to say that you can still read the report courtesy of the Maryland Pirates.

The Incidence of Mandated Maternity Benefits

I know that is from 1994, but it is by Jonathan Gruber (pdf) and the point is an important one:

I consider the labor-market effects of mandates which raise the costs of employing a demographically identifiable group. The efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group-specific wages. I study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans, raising the relative cost of insuring women of childbearing age. I find substantial shifting of the costs of these mandates to the wages of the targeted group. Correspondingly, I find little effect on total labor input for that group.

This has become more relevant in light of a recent story out of California, excerpt:

The ability of the exchange to lower healthcare costs remains unclear. Experts said average premiums could rise in the exchange because the Affordable Care Act requires improved benefits, but consumers’ out-of-pocket medical costs could decrease under those same changes.

California insurance officials have expressed concern about substantial rate hikes for some existing policyholders going into the exchange.

Under a new rating map approved by state lawmakers, the Department of lnsurance estimated that premiums for similar coverage could increase as much as 25% in West Los Angeles, 22% in the Sacramento area and nearly 13% in Orange County.

I believe some of that is from a pooling effect and some from a greater coverage effect.  I do not, by the way, find this reassuring:

Janice Rocco, the state’s deputy insurance commissioner for health policy, said her agency is pushing a new rating map that would cap increases at 8%. That proposal could be considered during a special legislative session in the coming months.

“We want to minimize the rate spikes,” she said.

I’ve said it before and I’ll say it again: the mandate as currently constituted probably won’t work.  The Medicaid extension can, in principle, work, and yet the state-level rebellion against it does not seem to be fading away.