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China's growing regional strength
Daniel Drezner posts on the ways that China is translating its growing economic significance into regional political power: "China's growth as a regional power, redux"
For a concrete example, look at the Australian foreign minister's recent statement distancing Australia from potential U.S. military support for Taiwan. See: "Economic basis of political power".
Light posting likely
Posting may be light for several weeks, but it should pick up in late September.
GPS as a public good
Eric Helland at Marginal Revolution suggests the U.S. GPS system as an example of a a non-rival and non-excludable public good: "Candidate Public Good".
Moral hazard and the Pension Benefit Guaranty Corporation
Daniel Drezner points to a Cato study which itself points to the moral hazard issue at the core of upcoming problems with the federal Pension Benefit Guaranty Corporation: "Headlines from the future"
The study is "How to Reduce the Cost of Federal Pension Insurance" by Richard A. Ippolito.
Outsourcing and the California legislature
Virginia Postrel reports on a study, commissioned by the California legislature, that finds outsourcing increases employment in California. Postrel reports that the legislature is sitting on the report: "Stifling Good News about Outsourcing"
Meanwhile, Postrel notes,
Postrel is passing on things she learned from a Sacramento Bee columnist Daniel Weintraub. Weintraub's column is here: "Lawmakers sit on study praising offshoring jobs".
PS: August 25: Daniel Drezner found the paper, dated yesterday, on the web. He links to it and quotes extracts, here: "Offshoring creates jobs in California".
Impact of new overtime rules on Cape Cod
New federal overtime rules took effect on Monday. I posted about them here: "New Overtime Rules".
Eric Gershon reports that "Payday won't change for most Cape employees" (in the Cape Cod Times). The Cape, a resort and retirement area, may be atypical of the national labor market.
As the title indicates, Gershon's survey of employers found little evidence that there would be a significant impact. Most employers have five or fewer workers,so "employers don't have much opportunity to reclassify workers as executives, administrators, or managers, none of whom get overtime pay." The largest employer, Cape Cod Healthcare, with 4,500 employees, and local governments, have unionized work forces, and will see little change.
One employer said that market forces would prevent the change from affecting his workforce:
But Barreiro said he would adhere to the unwritten laws of the labor market - top performers get top pay, including overtime, or split.
For the same reason, he said, he will also continue to give his head chef overtime benefits, even though he would normally be exempt as a manager..."
"It's going to be an explosion of litigation," said Bryan Decker, a partner at Sandulli Grace, P.C., which represents police unions in Sandwich, Mashpee, Harwich, and Chatham...
"...A prudent business is going to pull out all their job descriptions and start matching them against these new rules," she [Wendy Northcross of the Cape Cod Chamber of Commerce] said..
Interstate shipments of wine
Todd Zywicki at The Volokh Conspiracy posted an eight part series on the economic and legal issues associated with state laws discriminating against out-of-state shipments of wine to a state's residents.
Lynne Kiesling has collected links to all eight posts in one post of her own on the Knowledge Problem: "Wine Wars"
Glenn Garvin was in Florida when Hurricane Andrew swept through the state in 1992. He wrote about the public and private responses to the disaster in this January 1993 Reason magazine: "Reaping the Whirlwind". Lots of interesting observations. Like this one:
With so much work waiting to be done, and plenty of money from insurance companies and the federal government available to finance it, hundreds of out-of-town companies have come to Miami to help. It's a classic case of market forces at work–or it would be, if local governments and contractors hadn't entered into a cabal to thwart them. As Charles Lennon, executive director of the South Florida Builder's Association, observed: "We don't need 6,000 unemployed carpenters from Massachusetts clogging up Interstate 95 looking for a job." To see that they won't be, Dade County officials within days of the hurricane ruled that out-of-county contractors can't do any work until they pass a temporary licensing test. And that test will be given...sometime. In early October, county officials still hadn't gotten around to scheduling the first exam..."
This is an interesting article, but it is basically a collection of anecdotes from the Andrew recovery, organized to illustrate the government's incompetence and the vitality and utility of the spontaneous private sector response.
I learned about this from Virginia Postrel
Revised 8-23-04 (title change)
Doha Round politics
World Trade Organization (WTO) countries may have reached agreement a few weeks ago in Geneva on a framework for continuing trade talks, but Rosemary Righter sees problems ahead in this Timesonline analysis: "Stop the world, Jacques Chirac wants to get off"
Her argument: The capable French EU trade negotiator, Pascal Lamy, has been deliberately dropped by President Chirac in order to slow negotiating momentum. In the U.S. Kerry is distinctly wobbly on free trade issues. A Kerry victory may mean less U.S. interest in trade talks. The U.K.'s Peter Mandelson, the new EU trade representative, may be able to take up much of the slack left by Lamy's departure, but it's not clear the U.K. would be willing to push ahead if the U.S. were not interested.
The good news:
...as farmland is concreted over, geography and industrialisation are forcing China to shift from land-intensive grain, which it will increasingly import, to labour-intensive fruit and vegetables that it can export. India, whose farmers should be able to hold their own against all-comers, still does not see that nothing would do its farmers more good than a spot of competition. But its burgeoning service industries could make agricultural protectionism expendable as part of the broader bargain.
I began with gloomy reflections about a potential loss of momentum on the Western front. But the prospects for trade liberalisation are brighter today than they have been for five years, because the conspiracy theories about globalisation are losing their allure for the rising stars of the global trade scene. Celso Amorim, Brazil’s Foreign Minister, proudly declared after Geneva that trade is now a multipolar game. The good news is that he appears to be right."
World Crime Roundup
Cronaca reports that Munch's painting "The Scream" was stolen from an Oslo museum: "The Scream" stolen . Last winter I posted on the tie between "The Scream" and the explosion of Krakatoa: "What Munch saw, where, and when".
Meanwhile, Tyler Cowen at Marginal Revolution posts on the "The Economics of Mexican Kidnapping" and on "How to Spot a Liar".
New Overtime Rules
New rules from the Department of Labor (DOL) governing "time and a half" overtime under the 1938 Fair Labor Standards Act (FLSA) take effect on Monday. Here's the New York Times report: "New Overtime Rules to Take Effect Monday", and here's a report from the Washington Post: "Rules for Overtime Pay to Take Effect".
The U.S. Department of Labor's overtime pay page is here: "Overtime Pay". The DOL's webpage on the new rules themselves is here: "FairPay".
The Economic Policy Institute's Ross Eisenbrey estimates the changes in the extent to which workers will be covered by the overtime rules in: "Longer Hours, Less Pay".
Under current law, each of the following three tests must be met to classify an employee as exempt and therefore ineligible for overtime. First, the “salary-level test” stipulates that employees earning less than a certain level each week cannot be exempt. Second, the “salary-basis test” states that employees must be paid a set salary—not an hourly wage—in order to be exempt. Finally, the third screening test is the “duties test,” which states that a worker cannot be denied overtime pay unless his or her duties are primarily “administrative,” “professional,” or “executive” in nature.
The new regulations would raise the salary level under which all employees are protected to $455 per week (i.e., any employee making under $455 would be eligible for overtime benefits). Under current law that level is set at $155 ($170 for professionals), a pay rate that has remained unchanged since 1975. A salary of $455 per week equals an annual salary of just $23,660, about $5,000 a year above the poverty level for a family of four. And because the exemption level is not indexed for inflation, it will protect fewer and fewer workers over time. Initially, about 400,000 employees who work overtime will now be paid for it.
The many other rules changes—principally those amending the three key duties tests—would dramatically increase the number of workers who would be classified as “professional,” “administrative,” or “executive” and thus remove millions of additional workers from overtime coverage.
Changes in the primary duty test and the redefinition of “executive” will allow employers to deny overtime pay to workers who do very little supervision and a great deal of manual or routine work, including employees in factories and industrial plants. Employees who can only recommend—but not carry out—the “change of status” of the two employees that they “supervise” will be exempted as “executives” even if they manage nothing more substantial than a team or grouping of employees...
Approximately 130,000 chefs and sous chefs who are not executive chefs will be exempted as “learned professionals” and “creative professionals.” Pre-kindergarten and nursery school teachers, no matter how low their pay, will be exempt under the new rule, even if their work does not require the exercise of discretion and judgment...
Altogether, we estimate that nearly six million employees will lose their right to overtime pay on the basis of just 10 of the many changes the final rule makes in these critical regulations..."
As Alex Tabarrok pointed out the other day, in another context ("Economic foundations of law") contracts have a variety of elements, and a rule constraining one of these can be offset if the contracting parties make changes in other parts. An externally imposed requirement that college students working as crew on whale watching boats get 150% of their base salary if they work more than 40 hours a week may mean lower base salaries than otherwise, particularly if the firm anticipates that its employees will probably be working more than 40 hours a week during a busy summer season.
Australian general elections coming?
John Quiggen reports that general elections are likely soon in Australia, and that issues of Australian relations with the U.S. are likely to loom large in the debate: "Notes from (Down Under) Ground
Buying movie tickets on the internet
Dina ElBoghdady reports on the sale of movie tickets over the internet in tomorrow's Washington Post: Movie Previews. Online Ticketing, a Business Model Looking for Legs"
Frishberg doesn't want to risk showing up for a sold-out show. "Then [the kids] insist on seeing something else, and that something else is usually something I don't want them to see," she said.
Instead, she finds reviews of the movies her children want to see online. She then clicks onto the film's Web page, punches in her Zip code, locates the nearest theater, scans show times and types in her credit card number. At the theater, she claims her tickets, usually at an electronic kiosk or service desk..."
The article suggests that the most people now use the system to get tickets to movies that might be sold out. There is debate over whether this approach to selling tickets is going to take off. It will help when people can print out tickets at home - like airplane boarding passes now - so they don't have to stand in a line to pick up their tickets.
Alaska gets its fifth gold medal (in it's history)
Beth Bragg reports in today's Anchorage Daily News: "Alaskan is golden":
Using a gun borrowed from a fellow Alaskan, Emmons claimed gold in the men's 50-meter prone rifle competition. He became the fourth Alaskan to win an Olympic championship and the fifth to win an Olympic medal..."
New EU Trade Chief
Vic Keegan (at "Kick All Agricultural Subsidies") posts that Pascal Lamy has been replaced as the chief EU trade negotiator by Peter Mandelson of the UK: "Blair trade - Europe's new commissioner". The appointment came about a week ago.
Mandelson's career has had its ups and downs. Here is a BBC profile of Mandelson. Roy Hattersley writes about Mandelson in The Guardian: "The curse of Peter Mandelson".
It is extraordinary that a man of such conspicuous intelligence does not realise that his best interests lie in concentrating on the job rather than reading about himself in the gossip columns. Paradoxically, Peter Mandelson is in urgent need of a good press adviser."
Economic basis of political power
This week, the Australian Foreign Minister Alexander Downer told a Chinese audience that Australia was not bound by the ANZUS Treaty with the U.S. to come to U.S. aid if China tried to retake Taiwan by force. John Kerin reports in The Australian: "Downer retreats on Taiwan".
"To some extent, [Mr Downer's comments] may not be helpful because, as you know, China has taken a fairly militant position on the Taiwan issue," he said.
"If the world community is not committed to maintaining peace and the stability in the Taiwan Strait area, it could be sending a wrong message to Beijing.
"Australia would help the regional peace and stability by sending a more positive message to Beijing." "
"I have no idea in a hypothetical situation -- which would be a terrible crisis for the Asia-Pacific -- what action any country would take, including ours," Mr Downer told CNN in Hong Kong. "We've always maintained the position, in the 8 1/2 years I've been the Foreign Minister, that we make no comment about what would happen in a hypothetical circumstance." "
But defence and foreign affairs analysts said that while they were surprised Mr Downer had publicly expressed the view Australia might not automatically support the US over Taiwan, government people had been expressing similar views in Canberra for months.
Mr Downer's comments represented not only a shift in Australian foreign policy but also a recognition of China's increasing economic importance to Australia.
"For Mr Downer to make the point publicly in Beijing suggests a significant shift in our relations with the US and a growing recognition of China's power in the Pacific," Lowy Institute senior fellow Alan Dupont said last night. "And this has come from an Australian government far closer to Washington than most."
Former Australian ambassador to China and ANU professor of economics Ross Garnaut said last night Mr Downer's first comments represented "wise foreign policy in terms of the Australia-China relationship"..."
The Australians don't appear to feel threatened by China's growing political and military strength. The news stories and blogger comments suggest an intent by Downer to accommodate China over Taiwan in deference to the the growing regional significance of the Chinese economy.
I don't see any sense in the articles or posts (and obviously I've only looked at a few) of an Australian security interest in Taiwanese independence. In comments last week before going to China, Downer indicated that Australia favored a "one-China" policy, and that it was concerned about the implications of the China-Taiwan issue for regional stability: "Downer Against Taiwan's Independence".
The bloggers comment on moral dimensions to the case: China is an authoritarian state with a bad human rights record; Taiwan is a democracy; China may or may not have a historical claim to Taiwan; should Australians be concerned about the impact on Australia of growing ties to China?
See Channel News Asia for a recent story: "PM brushes off criticism of Australian FM's Taiwan war comments"
The cost of one more driver
Eric Helland, at Marginal Revolution, links to and discusses a paper by Aaron Edlin and Pinar Karaca-Mandic on road congestion externalities: "Toll Roads and Externalities"
Among other things, Edlin and Karaca-Mandic find that "In California, a very high-traffic state, we estimate that a typical additional driver increases the total insurance premiums that others pay by roughly $2231 ±$549 each year."
In July, the British Ministry for Transport released a report on the feasibility of road pricing to address driving externalities. The report web page is here: "Road Pricing Feasibility Study".
13. The key to a fully national road pricing scheme is a technology which can charge by time, distance and place to target the costs, including environmental costs. Most costs are caused by congestion. Targeting congestion might require a complex 'box' on board the vehicle which could work out exactly where, when and over what distance the vehicle was being used, possibly using a positioning system, although the technology requirement will depend on the precise requirements of the scheme, and on technological developments over time. On the advice of experts, the study estimates that the equipment necessary to deliver a full position-based charging scheme will not be available in a mass market, low-cost form, until at least 2014."
Kerry likes the WTO framework
Doug Palmer of Reuters reports that Kerry spokesmen have endorsed the new WTO Doha Round negotiations framework: "WTO Framework Deal 'Positive' - Kerry
Labor, however, wants him to make some changes:
"Our main concern with the framework is that there's absolutely no discussion on workers' right," said Elizabeth Drake, international policy analyst with the AFL-CIO, the United States' largest labor organization.
Developing countries have long resisted negotiations on labor in the WTO, fearing that could lead to costly new burdens and give rich countries an excuse to block their exports.
Former President Bill Clinton's suggestion that labor rights should be in trade agreements was one reason the December 1999 Seattle WTO meeting ended in failure."
Disaster insurance in Florida
In 1992 Hurricane Andrew killed 23 people, caused $15.5 billion in damage to insured property in Florida alone, and bankrupted almost a large number of insurance companies.
Frederick Mello describes how Florida adapted afterwards, for the Cape Cod Times: "Florida may be insurance bellwether" (Cape Codders, of course, may have their own hurricane disaster sometime, and have an interest in this).
...Average annual premiums already exceed $2,000 in Palm Beach County, $2,200 in Broward County and $2,700 in Dade County...
Florida insurers also began imposing wind-storm deductibles equivalent to at least 2 percent of a property's insured value, as opposed to a standard deductible of $500 or so. A homeowner with a $100,000 policy, for instance, would pay $2,000 out-of-pocket for storm damage. In exchange, homeowners receive a slight break on their annual premiums, and are guaranteed renewal the following year.
After Andrew, the state also created a catastrophe fund, to "re-insure," or reimburse insurers following a major storm causing $4.5 billion in damages or more...
That doesn't mean Florida is entirely out of the woods. The "CAT fund" is designed to withstand two major hurricanes per decade, paying insurers up to $15 billion for a single storm...
After Andrew, companies also adjusted computer-based hurricane models to account for greater storm damage than previously anticipated..."
Hurricane season brings a spate of blog posts on price gouging. This year Michael Munger at EconoLog has weighed in: "The Political Economy of Wishful Thinking". Over at Division of Labor we have E. Frank Stephenson: "Charley and "Price Gouging" ", Chuck Skipton: ""Unconscionable acts" in the sunny state of Florida:", and G. Dirk Mateer: "From CNN on gouging"
There were a number of posts last year. I did one ("The pros and cons of price gouging") that has links to others. This past March Kevin Brancato at Truck and Barter posted on anti-price gouging legislation in Virginia: "Anti-Price Gouging Law in VA".
The anti-price gouging legislation raises three general questions: (1) What impacts do these laws have on efficiency; (2) What is the source of the moral intuition that makes people think of price increases during or after a hurricane are unfair and wrong (as opposed to simply unpleasant); (3) What is the political economy of these things - what determines adoption and program characteristics?
The theoretical answer to question (1) is covered pretty well in the posts. The answer to the resource allocation question seems to be that non-price rationing will be substituted for price rationing. Non-price rationing is likely to involve higher transactions costs than price rationing. Available resources will be used in sub-optimal ways to a greater extent than otherwise. It will take longer for needed supplies to enter the affected region. The cost of government's response to the disaster will be greater than otherwise, because it will incur costs to enforce the price control, and may be expected to intervene to help deal with price control related supply shortages.
(Last year, Tyler Cowen introduced a different dimension to the discussion when he wondered why there wasn't more price gouging during Hurricane Isabel, despite the absence of legislation: "I survived hurricane Isabel, but couldn't buy a flashlight or the right size batteries, the night before the storm was to come. Merchants let supply run out rather than raise the prices...")
The existence of these laws may affect homeowner and business behavior before a disaster. (Skipton notes that, "The state of Florida also, conveniently, defines what is meant for the price of a commodity to be 'unconscionable' as a price that possesses 'a 'gross disparity' from the average price of that commodity during the 30 days immediately prior to the emergency. ' " Does this have implications for pricing decisions just prior to hurricane season?)
The posts (mine included) address the theoretical efficiency implications, but don't generally deal with the empirical literature (if there is any) on gouging laws. For example, do these laws actually significantly slow private sector supply responses? The Tyler Cowen post cited above implies that certain types of merchants will resist raising certain types of prices. This should affect the efficiency implications of a price gouging law.
The blogs don't generally deal with the last two questions either. Why do we think the price increases are unfair? Why will many of them think the fairness issue trumps the resource allocation issue? Who gains and who loses, and how do transactions costs affect the ability of the different groups to organize to pursue their interests politically?
Wednesday's New York Times has an anthology of Florida price gouging anecdotes, prepared by Joseph Treaster: "With Storm Gone, Floridians Are Hit With Price Gouging"
She said she had heard from a man who said he was told that the new price for a small household generator was now $2,000, up from about $250.
Many of the complaints have been for two necessities: bottled water and ice. But prices have also jumped for construction work and construction materials, and the authorities expect more of that as the recovery stretches on.
Janet Snyder, a pharmacy technician in Cape Coral, said several men in two pickup trucks spotted her roof damage and offered to lay down a temporary covering of plastic sheeting. They wanted $600, about four times what she figured was the right price, based on 15 rolls of plastic that usually sell for $10 each..."
Virginia Postrel abstracts insights from a recent book on Islamic economics, in this New York Times column: "Economics and Islam"
In a new book, "Islam and Mammon: The Economic Predicaments of Islamism" (Princeton University Press), Timur Kuran, professor of economics and law and the King Faisal professor of Islamic thought and culture at the University of Southern California, looks at the cluster of ideas known as Islamic economics.
This concept, he notes, is a 20th-century one, developed in India before independence..."
U.S. and European work effort
The New York Times recently carried an article by Mark Landler on hours worked by Europeans: "Europe Ponders the Meaning of Life". Europeans work less than people in the U.S. Landler locates the cause in cultural differences:
With more free time, the thinking here goes, Europeans can better nurture their families, contribute to their communities and cultivate their minds. Americans, caught in the frantic pursuit of success, and the McMansions and S.U.V.'s that come with it, don't have time for such a rich life..."
This paper by Edward Prescott notes that Europeans in certain countries used to work longer hours than we did, and argues that the change in hours worked was due to changes in marginal rates of taxation ("Why Do Americans Work So Much More Than Europeans"):
Table 1 shows a very different picture in the 1970–74 period. The difference is not in output per person. Then, European output per person was about 70 percent of the
U.S.level, as it was in 1993–96 and is today. However, the reason for the lower output in Europe is not fewer market hours worked,as is the case in the 1993–96
period,but rather lower output per hour. In 1970–74, Europeans worked more than Americans. The exception is Italy. What caused these changes in labor supply?"
The important observation is that the low labor supplies in Germany, France, and Italy are due to high tax rates. If someone in these countries works more and produces 100 additional euros of output, that individual gets to consume only 40 euros of additional consumption and pays directly or indirectly 60 euros in taxes...
An important observation is that when European and U.S. tax rates were comparable, European and U.S. labor supplies were comparable. At the aggregate level, where idiosyncratic factors are averaged out, people are remarkably similar across countries. This is true not only for the G-7 countries, but for Chile and Mexico as
shown by Bergoeing et al.(2002) and for Argentina as shown by Kydland and Zarazaga (2002)...
I am surprised that virtually all the large differences between the U.S. labor supply and those of Germany and France are due to differences in tax systems. I expected institutional constraints on the operation of labor markets and the nature of the unemployment benefit system to be of major importance. They do appear to be
important in Italy in the 1970 –74 period."
Arnold Kling posts on the care that needs to be taken in interpreting the European and U.S. productivity measures, here: "European Productivity"
Words to avoid in book reviews
Tom Payne provides a list of cliches common to book reviews, in this piece from the Daily Telegraph: "Circle of cliches"
This makes it into an economics blog because of the analysis of the incentives implied by the cliche, "the editor should be shot":
Brain function and choice
Jerry Adler reports on neuroeconomics - the study of the brain physiology of choice, for MSNBC: "Mind Reading"
I learned about this story from Arts & Letters Daily
Scary stories reg writers tell around the campfire: "Jim Tozzi and the Data Quality Act"
The three-part Washington Post series on regulation continues with a story on the Data Quality Act (DQA) by Rick Weiss: " 'Data Quality' Law Is Nemesis Of Regulation" .
The DQA was passed in 2000 as an obscure 32 word section in a 712 page appropriations act. Congress directed the Office of Management and Budget (OMB) to prepare guidelines to "provide policy and procedural guidance to Federal agencies for ensuring and maximizing the quality, objectivity, utility, and integrity of information (including statistical information) disseminated by Federal agencies." Here's a short overview of the OMB guidelines: "The Data Quality Act: A revoluation in the role of science in policy making or a can of worms?".
Weiss describes the origins of the DQA, and explains how it has been used - with a special case study of the regulation of the herbicide artazine. The general theme is that the DQA was introduced as a tool for use by business interests to hobble health, safety, and environmental regulation. No one can be against the use of better science, so a requirement for better science has considerable rhetorical power. But since scientific results always have an element of uncertainty, if you set the science standards high enough you can create grounds for delaying or derailing science-based regulation.
There is a certain amount of credible evidence that small amounts of atrazine can disrupt "hormones in wildlife - in some cases turning frogs into bizarre creatures bearing both male and female sex organs." Weiss describes how industry lobbyist Jim Tozzi (the author of the DQA itself) challenged EPA science on atrazine:
Tozzi said reliance on irreproducible results would violate the Data Quality Act because information that is not reproducible is "not accurate, reliable or useful."
As evidence of irreproducibility, he pointed to the dozen or so studies sponsored by Syngenta in addition to Hayes's study [Tyrone Hayes, a professor at UC Berkeley, who had done considerable work on atrazine, both for EcoRisk and independently. His experiments had indicated that small amounts of atrazine could have considerable impact on frogs - Ben]. An independent panel of experts convened by the EPA had already expressed exasperation over the conflicting results and mistakes they found in the design and implementation of those studies.
In at least two of the studies the "control" frogs that were supposed to be atrazine-free were later found to have been in water contaminated with atrazine, an error the scientists said was unintentional. Another set of Syngenta studies was found to be unreliable because 80 to 90 percent of the animals died, apparently as a result of inadequate care.
Essentially what Syngenta-funded scientists did "was produce a number of studies that were purposefully flawed and misleading, and that changed the weight of the evidence," Hayes said.
While the EPA review also found some flaws in Hayes's studies, his conclusions have been echoed by at least four other independent research teams in three countries.
"What a coincidence that everybody can find an effect of atrazine on gonads," Hayes said, "except [those] funded by Syngenta."
David Michaels, a professor of occupational and environmental health at George Washington University School of Public Health and Health Services, said even a good study will appear "not reproducible" if enough bad studies are thrown into the mix.
"I call this 'manufacturing uncertainty,' and there is a whole industry to do this," said Michaels, who was the Energy Department's assistant secretary for environment, safety and health under Clinton. "They reanalyze the data to make [previously firm] conclusions disappear -- poof. Then they say one study says yes and the other says no, so we're nowhere."
Pastoor of Syngenta said there was no conspiracy to create conflicting data..."
The political use of economic analysis
The city of Arlington in Texas is considering providing funding for a new stadium for the Dallas Cowboys. See "New stadium in Arlington: Be careful what you request" (link provided by Craig Depken). The city evidently votes on it this November.
Depken (an economist at the University of Texas at Arlington) reports (in his blog Heavy Lifting) on an economic analysis, commissioned by the City of Arlington, of the stadium proposal. "Arlington stadium saga continues...".
Apparently the study only measures benefits and doesn't count any costs. Moreover, all benefits are measured in 2010 dollars. Inflation between now and 2010 is assumed to be 3% a year, so the benefit estimate will be misleadingly high. Depken notes that, while local papers noted that costs were not counted, broadcast media outlets treated the results as an actual cost-benefit study.
I learned about Depken's posts from Skip Sauer, who says that that at Clemson, they refer to distorted analyses created by boosters to promote a project as "Billboard Economics".
Revised 8-15-04. The title used to be "The use of cost-benefit analysis to mislead." The report itself doesn't claim to be a cost-benefit analysis. The title is "Economic and Fiscal Impacts
for the Proposed NFL Stadium in Arlington, Texas." In general it appears to be an optimistic application of multiplier analysis to stadium related expenditures. The Dallas Morning News has a helpful article on the report, here: "Study on Arlington Cowboys stadium debated ". (registration required)
Bush Administration regulation
The Washington Post has begun a three part series on regulation under the Bush Admistration. The first contribution, by Amy Goldstein and Sarah Cohen, appears tomorrow: "Bush Forces a Shift In Regulatory Thrust. OSHA Made More Business Friendly"
State anti-gouging laws are counterproductive
Michael Munger elaborates: "The Political Economy of Wishful Thinking" Useful links.
Raw materials tariffs hurt raw material using industries
That can't come as any surprise. Virginia Postrel points to a current example; tariffs on Canadian lumber and Mexican cement that drive up these inputs and exacerbate the troubles of the construction industry, and threaten the economic recovery: "Recession-Boosting Protectionism"
How to make monkeys work hard
Randall Parker (FuturePundit) reports that scientists have been able to manipulate chemical processes in the brains of monkeys in ways that, at least for a few weeks, make them work harder and more efficiently: "Monkeys Turned Into Workaholics With Brain Gene Suppression". The experiment was based on a new understanding of the genetic basis of the way the brain evaluates effort-reward relationships.
Parker anticipates eventual application to humans and speculates about the implications: (1) treatment for certain mental disorders such as depression; (2) decisions by healthy people to take the drug, in order to give themselves an edge at work; (3) employer requests for genetic material from prospective employees to make sure they will be hard workers; (4) macroeconomic productivity enhancements through widespread use of a drug based on this knowledge; (5) genetic engineering of children so that they have a desirable work ethic.
Title change, 8-16-04.
What kind of a hold do these people have over the government?
Under the framework rules just negotiated in Geneva, countries are allowed to shield "sensitive" products from liberalization to some extent.
Big sugar is in line for shielding: Today the "PR Newswire" reports that, "A top government trade policy official told an international sweetener industry conference that the United States is "very likely" to designate sugar as a sensitive product in the Doha Round of World Trade Organization negotiations..." The rest of the story is here: "U.S. Official Tells International Sweetener Symposium: U.S. Very Likely to Designate Sugar as Sensitive Product in WTO"
Kenneth Dam writes,
The text of the framework agreement on sensitive products reads:
31. Without undermining the overall objective of the tiered approach, Members may designate an appropriate number, to be negotiated, of tariff lines to be treated as sensitive, taking account of existing commitments for these products.
32. The principle of ‘substantial improvement’ will apply to each product.
33. ‘Substantial improvement’ will be achieved through combinations of tariff quota commitments and tariff reductions applying to each product. However, balance in this negotiation will be found only if the final negotiated result also reflects the sensitivity of the product concerned.
34. Some MFN-based tariff quota expansion will be required for all such products. A base for such an expansion will be established, taking account of coherent and equitable criteria to be developed in the negotiations. In order not to undermine the objective of the tiered approach, for all such products, MFN based tariff quota expansion will be provided under specific rules to be negotiated taking into account deviations from the tariff formula."
Moral hazard links
Mahalanobis provides useful links to four online articles on moral hazard, here: "Moral Hazard"
Randal O'Toole doesn't think the National Parks need more money
Resource economist Randal O'Toole critiques a Kerry proposal to increase the National Park System budget with money obtained by a reform of the Mining Act of 1872: "Mining the National Parks"
O'Toole argues that this creates an incentive for the Park Service to encourage park mining. Moreover, he argues that much of the Park Service backlog of investment needs is unneeded (and expensive) employee housing.
Remember when overpopulation was a problem? It's not now, at least in the developed countries. Andrew David Chamberlin reports on Australia's new baby bonus to encourage childbearing: "Australia's Baby Economics"
The Alaska Senate race
Blaine Harden reports for the Washington Post on the Alaska Senate race between former Anchorage Mayor and Alaska Governor Tony Knowles, and incumbent U.S. Senator Lisa Murkowski: "Sen. Murkowski's Big Problem: Dad, the Governor"
Murkowski was appointed to office by her father, Governor Frank Murkowski. Governor Murkowski was one of our U.S. Senators for many years, but won the governor's office in 2002, and appointed his daughter, a state legislator, to fill his unexpired term. This was an awful way to start out.
Challenger Tony Knowles has his own burden. He has to overcome the perception that John Kerry and the Democrats aren't really excited about opening more areas on the north slope to oil drilling or more acreage in the Tongass Forest in SE Alaska to lumbering.
DeLong on Skidelsky and Keynes
Brad DeLong re-reviewed the first two books of Robert Skidelsky's three volume biography of John Maynard Keynes: "Robert Skidelsky's Biography of John Maynard Keynes" in a post today. A good read (the review and the books).
What's in it for our Australian friends?
In February, the US and Australia signed a Free Trade Agreement (FTA). Details may be found at the website of the U.S. Trade Representative (USTR), here: "U.S.-Australia Free Trade Agreement", and at the website of the Australian Department of Foreign Affairs and Trade (DFAT), here: "Australia-United States Free Trade Agreement".
In the US, Congress and the President have both signed off on the agreement. Meanwhile, in Australia, they're weighing the pros and cons of the treaty. In Australia, I gather that legislative assent isn't necessary for a treaty to come into force, but it is necessary for the enabling legislation. The Australian House has passed legislation, and now it is before the Australian Senate.
John Quiggin has a nice post giving linking to the range of Australian blog opinion on the deal: John Quiggin: A good week for Ozplogistan. Quiggin himself has posted extensively on the politics and economics of the FTA. His posts can be found by typing in "FTA" on the his blog's search engine (just down the right hand column a little bit).
Can you imagine preparing the EA/RIA/IRFA for these regulations?
Alex Tabarrok at Marginal Revolution notes that, after New Zealand decriminalized prostitution, the NZ Occupational Safety and Health Service had to prepare appropriate regulation: "Regulating sex work".
If we go that route here, someone will have to prepare the regulatory analyses required by the National Environmental Policy Act (a CE, and EA, or an EIS), Presidential Executive Order 12866 (cost-benefit analysis - an RIA), and the Regulatory Flexibility Act (impacts on small business - a certification, or an IRFA, a FRFA, and a small business compliance guide). Various other assessments (federalism, environmental justice) may be appropriate. All with appropriate peer review and compliance with the Data Quality Act.
I hope someone else has to do it. I bought Posner's book on law, economics and sex policy (Sex and Reason), once because I thought it might have some amusing examples to hold my students' attention, but I became too embarrassed to finish reading it.
The WTO uphold's Brazil's challenge to the EU sugar quotas
The Washington Post has the story here: "WTO Rules Against EU Sugar Subsidies". The New York Times reports here: "W.T.O. Rules for Brazil in Sugar Dispute".
Peter Gallagher comments here: "Sugar case victory on EU subsidies ", and Vic Keegan comments here: "Legal victory against sugar subsidies".
"Summertime and the Living is Easy"
If you're on Cape Cod this summer, take a dip in a kettle hole. If you're there on a rainy Saturday, go to my Dad's bookstore, Parnassus Book Service, in Yarmouthport. Tell him I sent you. For something a little different, buy a copy of In the Footsteps of Thoreau. 25 Historic Nature Walks on Cape Cod by Adam Gamble, and take a hike. Gamble has designed 55 hikes, long and short, so you can follow Thoreau on his four excursions to the Cape in the 1840s and '50s. You may also want to read Thoreau's Cape Cod.
I've been following the reopening of the Delsea Drive-in of Vineland, N.J., this summer ("Drive-in movies"). Samuel was there the first weekend, and posted this report, with pictures, to his blog: "Cheap Thrills".
Labor's share of national income
The most recent National Economic Trends of the Federal Reserve Bank of St. Louis has a short cover story by Michael Pakko on trends in labor's share of U.S. national income: "Labor's share"
His figure shows his estimate of total labor compensation by year since 1948 (including wages, salaries, employer social insurance contributions and benefits, an estimate of the labor portion of proprietors' income) and and an estimate of wage and salary income:
What would a Kerry trade policy look like?
Daniel Drezner tries to figure it out given the conflicting signals from the Kerry camp: "Laura Tyson vs... John Kerry".
Peter Gallagher wonders if it matters: "Is Kerry a 'free trader'? Does it matter? ".
What happened at the WTO?
Rather than multiply the number of posts, I'll try to accumulate a number of links in this one over the next day or so.
What was the point
The point of these negotiations was to get a political agreement on a framework within which to pursue more detailed negotiations. The framework identifies issues to pursue (for example, elimination of export subsidies), issues not to pursue (for example, transparency in government procurement), and describes how issues are to be pursued (for example cut agricultural tariffs using a tiered formula). But lots of details are left out.
Negotiations to flesh out the framework will begin again in September. The European Union's (EU)'s trade representative, Pascal Lamy, indicated today that he thought the negotiations could be completed by the end of 2005 (about 12 months later than originally planned). The next conference of WTO member country ministers takes place in December 2005 in Hong Kong. If the agreement is completed in 2005, it could become effective in 2006. This WTO web page describes how the negotiations are organized: "The Trade Negotiations Committee".
The WTO web site and the text of the agreement
The WTO web site release on the negotiation results is here: "Round-the-clock meetings produce ‘historic’ breakthrough". The text of the actual agreement is here: "Text of the ‘July package’ — the General Council’s post-Cancún decision". The U.S. Trade Representative's site has this useful bulleted list of key agreement elements: "Trade Facts".
Peter Gallagher provides a preliminary analysis of the final document, here: "A guide to the WTO Framework Agreement. ".
Paul Blustein summarizes the agreement in the Washington Post: "Accord Reached On Global Trade".
In return, developing nations would cut the steep tariffs that many of them maintain on agricultural and industrial goods, thereby expanding market opportunities for rich-country exporters.
But whether those cuts will be deep or shallow, immediate or gradual depends on how far negotiators are willing to go in making concessions as the Doha Round progresses. Sunday's deal leaves a huge amount of detail to be negotiated later, and negotiators here fought hard to keep many of their commitments as vague as possible to maintain their flexibility in the future talks..."
The August 3 issue of the weekly trade bulletin "Bridges" from the International Centre for Trade and Sustainable Development (ICTSD) has several articles on the negotiations: "WTO: July Framework Agreed At Eleventh Hour", " Agriculture: 'Remarkable Turn-Around' From Cancun", and "Work on Development Sees Limited Progress At WTO".
The Economist weighs in: "Progress at last, but still a long way to go".
Why was agreement reached in Geneva, but not in Cancun?
Peter Gallagher argues that Geneva succeeded because of the (1) the EU was willing to lay its agricultural export subsidies on the table (and French protests suggested that this was a proposal the world community had now but might not have later), and (2) because,while the text that formed the starting point in Cancun was an EU/US compromise, the text that formed the starting point in Geneva had input and buy-in from more countries and perspectives.
Peter Wilson, in The Australian contrasts the roles played by the less developed countries differed in Cancun and Geneva: "Poor nations flex trade muscles". A group of five countries or country-groupings (US, EU, Australia, Brazil and India) played a crucial role in the negotiations. Wilson provides a nice description of the origin of this group of "Five Interested Parties" or "FIP." Gustavo Capdevila writes about the changed negotiating roles of Canada and Japan, on the one hand, and Brazil and India, on the other: "TRADE: Recasting the Starring Roles in WTO".
Paul Blustein reports that the negotiations may have been successful, because poor countries were afraid of the damage that would be done to the WTO if they were not: "Poor Nations Put Premium on WTO's Survival ".
Those concerns were particularly strong among developing countries, including some of the same Latin American, African and Asian nations that had celebrated their defiant stance at Cancun as a triumph over the arrogance of the United States and the European Union. Despite complaints that Washington and Brussels use their clout to tilt the terms of global trade in their own favor, developing countries are keenly aware that the WTO system protects the interests of poor lands, especially small ones, much better than if world trade were governed by regional blocs or by the equivalent of the law of the jungle..."
The agreement calls for the end of trade-distorting practices by State Trading Boards, such as the Canadian Wheat Board. This Canada.com story, "Canada's wheat board under fire as WTO members agree to cut farm subsidies", describes a certain amount of Canadian concern about this issue:
In a telephone conference call from Geneva after the deal was announced, Peterson said: "In terms of supply management and in the case of the wheat board, I have to be honest with you, we were under attack."
"It was one against 146. We had absolutely no allies at the negotiating table, so there's no doubt that the WTO is not going to be a friend of either supply management or the Canadian Wheat Board."
Canada's Agriculture Minister Andy Mitchell added: "In (the agreement's) text, it suggests that as a state trading enterprise...that it is operating in a manner that distorts trade, that it is operating and providing export subsidies and as such would be required to cease activities that would be defined as export subsidies."
"The position of Canada is that the wheat board does not operate in such a manner, that its actions are not trade-distorting."
"The wheat board has been challenged on a number of occasions in the past and on each occasion it has been found that it has not been operating in that manner."..."
The "Group of 10"
The Group of 10 was a grouping of ten countries that sought to protect their agricultural sectors with subsidies and high tariffs. The countries included Switzerland, Japan, Norway, Taiwan, and South Korea. This July 23 Swissinfo report summarizes their negotiating objectives: "Switzerland defends agriculture subsidies".
The agreement calls for reductions in agricultural tariffs. This is a concern to countries like Japan and Norway, which protect agricultural sectors behind high tariff barriers. The Japan Times says that Japan sees a lot of flexibility in the agreement to protect its high agricultural tariffs: "WTO adopts framework accord for global trade".
By taking into consideration positions of food-importing countries like Japan, the accord proposes that each WTO member be given discretion in designating politically "sensitive" products, such as rice for Japan.
"Without undermining the overall objective of the tiered approach, members may designate an appropriate number, to be negotiated, of tariff lines to be treated as sensitive, taking account of existing commitments for these products," it says.
On Saturday, Japanese Agriculture, Forestry and Fisheries Minister Yoshiyuki Kamei said at a news conference Tokyo supports the revised text because it "allows for a broad framework agreement where food-importing nations will continue to assert what they deem necessary."
In the agreement, the WTO remained uncommitted to a tariff cap or a ceiling for high-tariff products that the so-called Group of 10 food-importing countries, including Japan, strongly opposes in order to protect their high-tariff agricultural products.
"The role of a tariff cap in a tiered formula with distinct treatment for sensitive products will be further evaluated," the document says.
Japanese negotiation sources said the phrase indicates the WTO has effectively decided to postpone making a decision on the tariff-cap issue until future talks."
The Indians seem pleased
The Indian government and papers seem pleased with the results. Here's the Indian government's press release: "Major Victory for India in WTO Revised Framework Agreement". The Indian Express reports that "Delhi wears a broad smile at Geneva table". The Times of India reports: "Jai Kisan deal: India scores win at WTO". The Hindustan Times: "India has its way at WTO talks".
Revised Tuesday, August 3, 9:20 PM