Ben Muse

Economics and Alaska

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An index of political corruption

The government doesn't publish statistics on the "volume" of political corruption ("...the loss to the public from the subversion of formal, or implicit, rules of government behavior."). Trends in its level have to be inferred from trends in related things.

Edward Glaeser and Claudia Goldin ("Corruption and Reform: An Introduction." NBER Working Paper 10775. September 2004) have created indices of newspaper reporting on corruption, and, on the theory that where there's smoke there's fire, use them as a general indices of changes in levels of US political corruption from the early 19th Century to about 1970. (The authors are aware of the potential shortcomings of the index and mention them in the article.)

They searched out instances of the use of variants of the words "corruption" and "fraud" in an electronic data base of the New York Times going back to 1851, and a data base of small town papers going back to 1820, and counted the number of articles or pages in which the words appeared. Key word counts were divided by series of word counts for "political," variants of politic, and "January." The division was done to "deflate" the series to account for changes in the size of the newspapers ("January"), or for changes in attention given to political stories ("political" or "politic").

Three series are reported, all moving fairly consistently. These show:
    "The first great boom in corruption reporting occurs around the 1840 election. Stories of corruption during this period focused on Tammany Hall and also Martin Van Buren, the first President who owed his success to a political machine (for a description of Van Buren’s activities in the banking sector, see the Bodenhorn essay). The next peak in corruption reporting occurred between 1857 and 1861 and focused on voting irregularities in Kansas. There is a global peak in the 1870s during the Grant administration. Top stories concerned Crédit Mobilier, the Whiskey Ring, and Reconstruction and the Ku Klux Klan. Finally, there is a small local peak in the late 1920s during the era of prohibition and the Teapot Dome scandal..." p 13
In general there appears to be an increase in corruption in the early 19th Century, high levels between about 1840 and 1870, declining levels from 1870 through the 1940s and relatively low levels thereafter. The authors note that the evidence for an increase going into 1840 is not much more than suggestive.

The authors explain the changes in levels of corruption by looking at the changing patterns of the benefits and costs of corrupt activity. In the early 19th Century, the increasing size and scope of government reduced the cost of corrupt actions:
    "...these factors suggest that the benefits of corruption will rise with the size and discretion of the government and the amount of social and economic regulation. Benefits from corruption will also rise when the size of assets or damages involved in property rights disputes increases (as in Glaeser and Shleifer 2003). As we will discuss later, the late nineteenth century was a period of increasingly larger governments, more valuable public assets, more aggressive regulation (as discussed by Novak’s essay) and bigger stakes litigation. The potential benefits from corruption rose during the period along almost every dimension." p8
Corruption didn't decrease because of decreases in the size of government. But changing laws and mores changed the costs of corrupt activity:

    "But the decline in corruption between the mid-1870s and 1920 was not associated with declining returns to corruption. The size of the government continued to rise and the returns from corruption in the judiciary increased as well. The big change over the twentieth century has been in the costs facing corrupt politicians. In 1900, many actions we would now prosecute were legal. Governments rarely prosecuted themselves, and the higher levels of government were sufficiently weak that they could not provide a check on local corruption. Newspapers had long provided exposure of corrupt practices, but in many smaller cities the news media was sufficiently tied to the political establishment that it was unlikely to trumpet information unfavorable to that establishment." p19

    "By the early twentieth century, the full apparatus of modern checks on corruption were in place. Rules had generally replaced discretion in many areas such as patronage. Different levels of government more effectively patrolled each other. Greater competition and political independence in the news media meant that corrupt activities and charges of corruption were more likely to be reported everywhere in America, not just in the big cities. Finally, voter expectations about corrupt behavior had changed and revealed corruption was more likely to lead to political defeat." p 19
This article is going to be an introduction to a collection of papers on U.S. corruption to be published by National Bureau of Economic Research (NBER) under the title, Corruption and Reform: Lessons From Americas History. The papers were presented at a conference this past July. Glaeser and Goldin's paper is available from the NBER web site: "Corruption and Reform: An Introduction".

Doha Round Agricultural Negotiations Get Going

I've found the weekly and monthly trade bulletins of the International Centre for Trade and Sustainable Development (ICTSD), Bridges Weekly Digest and Bridges Montly Review, - both available in free email subscriptions - to be helpful guides to the ongoing WTO Doha Round trade negotiations.

Our story thus far: In Cancun in the fall of 2003, the WTO failed to reach an agreement on the overall framework for continuing the current "Doha (development) Round" of trade negotiations. In a cliffhanging episode in Geneva in July 2004, the WTO cobbled together a compromise framework.

This week's Weekly Digest reports that negotiations on agriculture issues (one of several sets of issues to be negotiated, but the most important), conducted within the Geneva framework, are beginning:
    "On 24 September, delegates to the WTO met informally to discuss the way forward in agriculture negotiations. The meeting was the first to follow a Framework Agreement reached at the end of July that effectively salvaged the Doha negotiations...The discussions on the agriculture section of the "August Decision"... had been particularly sensitive. After the intense negotiations in late July, the Geneva process is expected to pick up only slowly. The initial work will be based on a list of technical issues compiled by Tim Groser, who chairs the Committee on Agriculture (CoA) special (negotiating) session.

    Chair Groser stakes out road ahead

    At the 24 September informal meeting, Chair Groser suggested that Members focus their talks on technical issues over the next two months. These technical issues would build on the July Framework Agreement, and their further elaboration based on the political decisions taken. Chair Groser specified that he would serve as coordinator of the talks and that the meetings would be held both formally and informally, in different configurations. He stressed that Members needed to make progress on these technical issues, paving the ground for the next set of political decisions to be made. As such, this was not the time for Members to be commenting on the July Framework, but for them to take the decisions of the Framework forward. He suggested that Members begin by exploring technical issues under all three pillars
    [The "three pillars" is WTO-speak for three key agricultural negotiating goals: reductions in barriers to market access (like tariffs and quotas), reductions in export subsidies, and reductions in domestic production subsidies; see below - Ben]. The EC and Switzerland, speaking on behalf of the G-10 (a group comprising food importing developed countries), felt non-trade concerns should also be considered. Chile intervened to comment on the limited expectations Members had for progress prior to the next WTO ministerial meeting, to be held in Hong Kong in December 2005.

    Talks to focus on three pillars

    The upcoming technical discussions on the July Framework -- as outlined by Chair Groser -- will focus on a number of specific issues under the three pillars of domestic support, export competition and market access. Under domestic support
    [subsidies to domestic producers - Ben], Members will consider issues related to the review and clarification of the so called "green box" containing at most minimally trade distorting support. They will also explore the question of how to define "support for subsistence and resource-poor farmers" and the exemption of developing country support in this regard under the "amber box" of distorting support measures.

    Under export competition
    [subsidies for exporters - Ben], technical discussions will revolve around the concept of parallelism. In practical terms, this involves ways to ensure that not only direct export subsidies, but also export credits, export guarantees, and certain types of food aid and practices of state trading enterprises do not distort markets. For the time being, Members will focus on elaborating key definitions and other technical issues.

    Regarding market access
    [tariffs and quotas that create barriers to imports - Ben], Members will, among other things, revisit technical issues related to a "special safeguard mechanism," which developing countries can use to shield themselves against import surges.

    Regular session to convene informal talks on net food-importers

    In the regular session of the CoA on 23 September, Members considered a number of routine items involving the review of notifications by Members. Notifications that attracted particular attention included US food aid in the form of skim milk powder, with New Zealand, Argentina, Australia, Brazil, Canada and the EC asking whether the aid displaced commercial sales. Members further raised questions regarding the implications of the enlargement of the European Union, and how certain subsidies would be adjusted in the new members.

    Also at the regular session, Members decided to hold informal consultations on net food-importing developing countries prior to their next meeting. The discussion of possible flanking measures
    [flanking or accompanying measures - Ben] for net food-importing countries [agricultural reform is expected to increase agricultural prices. If you are a net food importer, this may not be a good thing. I imagine they are considering supplementary measures to protect these countries. - Ben] is among a set of specific decisions on special and differential treatment (S&D). Under the August Decision, Members are to "expeditiously complete the review of all the outstanding Agreement-specific proposals and report to the General Council, with clear recommendations for a decision, by July 2005".

    The next regular session of the CoA is scheduled for 18 November. The Committee will meet in special session on 8 October, with informals taking place on 6 and 7 October.

    ICTSD reporting."

Who will be the next president of the World Bank?

The controversial World Bank plays a key role in world anti-poverty efforts. Its presidents serve five year terms; the current president's second term will be up in 2005. Sebastian Mallaby of the Washington Post wonders who will replace him: "The World Bank's Force of Nature"
    "...There are no officially declared candidates as yet, and the winner won't be known until after the U.S. election. But the rumor mill is churning hard: There's whispering of Powell and Clinton, but also of Robert Zoellick, President Bush's trade czar, and Stan Fischer, former No. 2 at the International Monetary Fund.

    And then there is another candidate, who should not be overlooked. The man who replaces Jim Wolfensohn, the bank's larger-than-life incumbent, may turn out to be none other than that very same Jim Wolfensohn..."
Mallaby's column is about the political in-fighting for a position like this; his thesis is that if Wolfensohn wants it, he will be a formidable contender.

Mallaby has just written a biography of Wolfensohn, focusing on his tenure at the World Bank. (The World's Banker: A Story of Failed States, Financial Crises and the Wealth and Poverty of Nations).

This week's Economist (premium content) gives Mallaby's book a good review: "James Wolfensohn. Damned if you do" (" “The World's Banker” sets out to be a biography of Mr Wolfensohn, but it is really as much about the rich world's relations with the poor. Mr Mallaby writes about this vast topic with vigour and wit, and in a [reasonable - Ben] tone...Mr Wolfensohn comes across as filled with “a roaring restless hunger to do all the things that man can do, and to succeed at all of them.” On the negative side, he is so vain that he prefers to shout at his subordinates than share credit with them. He probably won't like this book. But anyone else who cares about development will.")

The anonymous reviewer has this (probably not completely fair, but entertaining) take on NGOs:

    "Unelected, unaccountable non-governmental organisations (NGOs) are generally assumed to be honest and virtuous. The World Bank, which does more to fight poverty than any other public body, is generally viewed as the villain. This is partly because it makes mistakes, but mostly because it is besieged by single-issue fanatics in the West who condemn it whenever it fails to make their issue its top priority.

    James Wolfensohn, the World Bank's president since 1995, has made strenuous efforts to accommodate the NGO swarm. Every infrastructure project the Bank funds must meet rich-world standards: nothing pretty may be bulldozed unless strictly necessary, and no worker may be asked to do anything that a Californian might find demeaning. As a result, fewer dams, roads and flood barriers are built in poor countries. More poor people stay poor, live in darkness and die younger..."
The reviewer suggests that Mallaby argues that Wolfensohn has been too willing to compromise with NGO objectives, to the extent of losing track of the needs of poor countries.

Mallaby spent 13 years with the Economist and has been with the Post since 1999. Many of his columns deal with political economy. A selection of his columns may be found here: "Sebastian Mallaby". These columns are good. I especially enjoyed last Sunday's "It Pays for the U.S. to Go to the Bank" (contrasting Clinton administration efforts to use World Bank resources to facilitate peace in the Balkans with Bush Administration failure to use it to help in Iraq), "Trade and the Honest Candidate" (a critique of Kerry's speech at August's Democratic convention), and "Kit's Caboodle" (on the politics of the Corps of Engineers project to improve navigation on the upper Mississippi). But many of the others are worth while.

Kudos to Rep. Adam Smith, (D., WA)

Another Drezner post, this one calling attention to Smith's constructive approach to the outsourcing issue:
    "A tip of the cap from everyone here at to U.S. Representative Adam Smith. Beyond the unbelievably cool-sounding name, Smith has acted like a responsible grown-up on the offshore outsourcing issue. His one op-ed on the subject didn't demagogue the issue, and offered an eminently sensible, constructive request -- expanding coverage of Trade Adjustment Assistance to include service sector workers. No hysterical claims that offshoring was destoying the American economy, or even his district. Just a sensible policy proposal and an appropriate request for more information. Also, in contrast to the aforementioned unions, it appeared he's actually read the GAO report.

    A politician who seems reasonably well-informed and resists scapegoating a non-issue. Damn, that's refreshing."
The compliments come in the course of a post on a recent Government Accountability Office report on offshore outsourcing:"The GAO's Rorshach test on offshore outsourcing"

Let's make jobs by banning ATMs

Daniel Drezner notes that the IT Professionals of American want to promote better working conditions and job creation by encouraging a boycott of self checkout lines at supermarkets. He offers some additional, and helpful, suggestions: "A modest proposal to ban automation"

John Kerry's decision making

Today's New York Times had a story by Adam Nagourney and Jodi Wilgoren
on Democratic presidential candidate John Kerry's approach to making decisions: "Kerry as the Boss: Always More Questions"

Nagourney and Wilgoren describe Kerry's aggressive questioning as he tries to gather information and alternative opinions:
    "Mr. Kerry is a meticulous, deliberative decision maker, always demanding more information, calling around for advice, reading another document — acting, in short, as if he were still the Massachusetts prosecutor boning up for a case."
This clearly has its upside. However, the trade-off is:
    "But the downside to his deliberative executive style, they said, is a campaign that has often moved slowly against a swift opponent, and a candidate who has struggled to synthesize the information he sweeps up into a clear, concise case against Mr. Bush.

    Even his aides concede that Mr. Kerry can be slow in taking action, bogged down in the very details he is so intent on collecting, as suggested by the fact that he never even used the Medicare information he sent his staff chasing."
Kerry's decision making creates perverse incentives for his advisors:
    "His habit of soliciting one more point of view prompted one close adviser to say he had learned to wait until the last minute before weighing in: Mr. Kerry, he said, is apt to be most influenced by the last person who has his ear. His aides rejoiced earlier this year when Mr. Kerry yielded his cellphone to an aide, a move they hoped would limit his distractions in seeking out contrary opinions."
The story suggests a lack of focus in Kerry's questioning:
    "At meetings, Mr. Kerry poses contrarian questions in an often wandering quest for data and conflicting opinions, a style that his aides, sometimes with a roll of the eyes, call Socratic."
Other insights: Kerry's been willing to make decisive personnel changes, but he's made them often enough that he's left with a staff with relatively little personal "history" with him or loyalty to him. The article also portrays him as more interested in policy than politics:
    "Mr. Kerry has less of an interest in the processes of politics than the president does. If Mr. Bush likes to talk about party registration breakdowns in southern Ohio, Mr. Kerry drifts off when the subject turns to the demographic details of campaign polling. While Mr. Bush screens new television advertisements in the White House family quarters, Mr. Kerry is often satisfied with viewing a rough cut, or skimming a script. He is also apt to exhibit a blank face when he runs into a Democratic leader he should remember, one aide said."

Regulating behavior

This post from Lynne Kiesling's blog Knowledge Problem illustrates the problem with regulating behavior. People aren't like rocks - regulators can't just put them in one box or another and expect that they will stay put. They have imagination and initiative, they move ont their own, and the react against regulatory constraint: Human Creativity and Interstate Wine Shipment

The trade-off between capital and labor

As Greg Depkin says, "Good god..."

The wreck of the Portland

In July 1897 the coastal steamer Portland arrived in Seattle, filled with miners and Yukon gold. The great gold rush to the Yukon's Klondike region exploded across North America. Ten thousand Seattle residents tried to set off that summer. This site provides a nice, brief history: "The Klondike Gold Rush: Curriculum Materials for the History of the Pacific Northwest
in the Washington Public Schools"

The gold rush was enormously important in the history of Alaska and the Yukon, so the discovery of the location of the wreck of the Portland is newsworthy. The story is covered here: "Remains of Gold Rush-era ship identified". This ship had a colorful history, in addition to its role in the gold rush:
    "The wooden-hulled 191-foot steam ship was launched in Bath, Maine, in 1885 as the Haytian Republic. It was to haul goods in the West Indies trade.

    According to a 1955 article in the Alaska Sportsman, the government seized the vessel in 1888 and charged its captain with smuggling arms to the Hippolyte rebels. The crew was sent home after one died from yellow fever. Strong winds blew the ship onto the rocks, and a Haitian ship rammed it.

    Its owners sent the vessel around Cape Horn to supply Alaska canneries and whaling bases. That work never panned out, but by 1892 the ship was making money by hauling contraband, customs agents suspected.

    The uninsured Haytian Republic burned and sank near Portland, Ore., allegedly with illegal opium on board. It was raised and repaired and caught several times smuggling Chinese laborers and opium into Canada.

    U.S. Marshals ordered the ship sold. The new owners overhauled the vessel and renamed it the S.S. Portland. The Portland was among about two dozen Alaska coastal steamers hauling freight and passengers when gold was discovered in the Klondike in 1896."
Here is a site with a picture of the Portland: "Klondike Gold Rush".

After the gold rush, the Portland operated off of Alaska. It hit a rock off the Gulf of Alaska coast in 1910, and was apparently beached near the Katalla River (somewhat to the east of Prince William Sound). Gradually the ship was covered by silt. The 1964 "Good Friday" earthquake lifted this area about 12 feet. Subsequently the silt was eroded, exposing the ship - fairly well preserved.

How fast is the price of employer provided health insurance rising?

It rose 13.9% last year and should rise 11.2% this year.

It's rising five times the rate of growth in wages and prices.

See this story by Albert B. Crenshaw in today's Washington Post: "Health Insurance Premiums See Double-Digit Increase".

And the percentage of people getting health insurance through their employers is dropping:
    "The percentage of all workers who have health insurance through their employers continues to slip, with 5 million fewer jobs offering health insurance now than in 2001, Kaiser said. Although this year's decline was slight -- to 61 percent from 62 percent in 2003 -- the drop from the peak of 65 percent in 2001 is "significant," Kaiser said. The share of workers at small firms -- those with three to 199 workers -- getting health insurance declined to 50 percent this year from 58 percent in 2001."
The story suggests that workers only pay part of the cost of coverage under the employer provided plans (it reports that this "share" has remained fairly constant since 1988 - although the story says the share is almost 30%, the examples it reports suggest this is the case for family coverage, but not for single worker coverage):
    "Among all plans, workers on average pay $2,661 of the $9,950 annual cost for family coverage and $558 of the $3,695 [for a single worker - Ben]..."

As Arnold Kling points out, this ignores the fact that insurance is part of a total compensation package and that, if employers are ostensibly paying for insurance coverage in one part, they may not be paying as much as they otherwise would have in other parts (wages, working conditions, etc.) :

    "If employers bear the cost of health insurance, then I'm the Easter Bunny. It is fairy-tale economics to believe that "nice" employers give away health insurance, while "mean" employers withhold it. In reality, employers compensate their employees using a combination of cash and non-cash benefits. Workers bear the cost of health insurance.

    The right way to think about health insurance is not as something that employers provide but as something that employers sell to their employees. Your employer is an intermediary between you and the insurance company. Step one, your employer company decides how much to pay for your labor. Step two, the company takes some of that pay and makes you buy health insurance with it..."
See "Middle Man Mess". If the cost is rising faster than 10% a year, and the employee "share" is remaining constant at 30%, either (a) employee compensation is rising overall due to rising insurance costs, or (b) some other component(s) of employee compensation is(are) falling, or (c) some other component(s) are rising, but less rapidly than the insurance component.

Salma Hayek vs. Friedrich Hayek Scorecard

I learned about this from Mahalanobis.

Paul Samuelson on outsourcing

I don't have many opinions, but I am in favor of free international trade in goods and services.

However, if Paul Samuelson has reservations (as Steve Lohr reports in the New York Times) I'll listen: "An Elder Challenges Outsourcing's Orthodoxy"

Samuelson lays out his argument in an article in an upcoming issue of the Journal of Economic Perspectives (accompanied by a rebuttal by Jagdish Bhagwati and others). Lohr says:
    "...According to Mr. Samuelson, a low-wage nation that is rapidly improving its technology, like India or China, has the potential to change the terms of trade with America in fields like call-center services or computer programming in ways that reduce per-capita income in the United States. "The new labor-market-clearing real wage has been lowered by this version of dynamic fair free trade," Mr. Samuelson writes.

    But doesn't purchasing cheaper call-center or programming services from abroad reduce input costs for various industries, delivering a net benefit to the economy? Not necessarily, Mr. Samuelson replied. To put things in simplified terms, he explained in the interview, "being able to purchase groceries 20 percent cheaper at Wal-Mart does not necessarily make up for the wage losses."

    The global spread of lower-cost computing and Internet communications breaks down the old geographic boundaries between labor markets, he noted, and could accelerate the pressure on wages across large swaths of the service economy. "If you don't believe that changes the average wages in America, then you believe in the tooth fairy," Mr. Samuelson said.

    His article, Mr. Samuelson added, is not a refutation of David Ricardo's 1817 theory of comparative advantage, the Magna Carta of international economics that says free trade allows economies to benefit from the efficiencies of global specialization. Mr. Samuelson said he was merely "interpreting fully and correctly Ricardoian comparative advantage theory." That interpretation, he insists, includes some "important qualifications" to the arguments of globalization's cheerleaders..."
I'll look forward to the next copy of the JEP. The Times story has a nice picture of Samuelson, who is now 89.

P.S. Arnold Kling can't find the Samuelson article online, but he has found the Bhagwati et al. piece, links to it, and provides a tentative comment: "Outsourcing Muddles". Daniel Drezner is unconvinced by Samuelson's argument, but he does note:
    "... as a political scientist, it is impossible to deny the extent to which Samuelson's article will alter the rhetorical balance of power in this policy debate. Samuelson will succeed in reigniting debate on this topic, as well as provide aid and comfort to those who wish oppose the practice of offshore outsourcing..."
("Paul Samuelson's outsourcing "bombshell".)

They can cure perfectionism now

Rebecca DiGirolamo reports in The Australian: "Perfectionists help themselves to do a lot better"
    "PERFECTIONISTS have a strong tendency to depression, obsessive compulsive disorders and suicidal thoughts but can be treated for their largely hidden psychological disorder.

    A study into perfectionism at South Australia's Flinders University tracked 26 diagnosed perfectionists who battled daily with debilitating psychiatric problems, including depression and obsessive compulsive behaviour. It is the first Australian research to test for possible treatments of perfectionism.
    Flinders University psychology PhD student Jessica Pleva said preliminary findings suggested perfectionism was treatable and an important first step to treating the associated disorders..."

Tort reform and health care costs

Will tort reform bring health care costs under control?

Kash at Angry Bear does some "back of the envelope" calculations which indicate that this isn't where we're going to get the big savings: "Bush's Solution to Rising Health Care Costs"
    "...According to a CBO briefing on the subject, the total cost of malpractice lawsuits in the US was about $24 billion in 2002, up from about $21 billion in 2000. Their estimates are that significant tort reform may be able to cut these costs by 25 to 30 percent, thereby reducing some of this country's health care costs by $6 or $7 billion per year.

    Unfortunately, the total cost of health care in the US was about $1,557 billion in 2003, an increase of about $110 billion from 2002. If tort reform had been passed earlier this year, and every dollar saved from reduced malpractice suits was passed on to consumers, then the effect on the country's health care bill would (with luck) have been to reduce it from perhaps $1,670bn in 2004 all the way down to $1,663bn."
Kash also cites a CBO study of state level tort reform suggesting that there has been little or no change in spending on defensive medicine associated with these efforts.

"Be careful what you wish for, you might get it" Department

Over at Foreign Dispatches Abiola Lapite looks at what can happen when the prince on the white horse actually does come and carry you off: "The Gilded Cage" .