Tag Archives: World

Trade Dominance

Me two years ago:

I surveyed the last ten China new articles in the Post and NYT. … Top US newspapers are in full fledged China bashing mode. (more)

I expect similar results today. Often, hostility to foreigners appears as opposition to letting locals buy stuff from foreigners. Yet sometimes it also appears as opposition to letting locals sell stuff to foreigners:

As China moves to invest billions in businesses around the world, one major industrial nation has so far soaked up very little of the cash: the United States. … Chinese business owners who want to invest in the United States say they often have a difficult time obtaining a U.S. visa to be able to travel and see projects. …

In 2005, the Chinese oil company CNOOC dropped its $18.5 billion bid for the U.S. oil firm Unocal, after some members of Congress expressed security concerns and asked whether CNOOC had unfair access to cheap financing. In early 2011, China’s largest maker of telecommunications equipment, Huawei Technologies, withdrew its bid for the assets of the American company 3Leaf after a review by a U.S. government panel on foreign investment raised concerns about Huawei having links to China’s People’s Liberation Army, which the firm denies. “After that, Chinese investors are kind of lost and bewildered; they don’t know what they can invest and what they can’t.” (more)

Presumably this stupidity is due to some sort of psychology, but what? Why object to both buying and selling to foreigners? Can people really think both sides are hurt by a trade?

My guess: because firms are larger than customers and employees, we see the firm as dominant in both firm-customer and firm-employee relations. So buying into ownership of a firm is buying into a position of dominance. Thus people object both to locals buying stuff from foreign firms, and to foreigners buying into local firms, because they object to locals being submissive to foreigners.

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This Is the Plane Era

Once upon a time planes were only a minor part of world transportation. No longer:

A large and growing share of international trade is carried on airplanes. Air cargo is many times more expensive than maritime transport but arrives in destination markets much faster. … We estimate that each day in transit is equivalent to [a tax] of 0.6 to 2.3 percent and that the most time-sensitive trade flows are those involving parts and components trade. …

Ocean-borne cargo leaving European ports takes an average of 20 days to reach US ports and 30 days to reach Japan. Air borne cargo requires only a day or less to most destinations. … In 2005, goods imported into the US faced per kilogram charges for air freight that were, on average, 6.5 times higher than ocean freight charges. … Excluding Canada and Mexico, 36 percent of US imports by value and 58 percent of US exports by value were airborne in 2000. … In 2004, air cargo as a share of export value was 29 percent for the UK, 42 percent for Ireland, and 51 percent for Singapore; 22 percent of Argentine and 32 percent of Brazilian imports were airborne. … From 1965-2004, worldwide use of air cargo grew 2.6 times faster than use of ocean cargo. (more)

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Missing Work Stories

In my culture, most stories are not about work life, and the few stories that are focus on a narrow set of unusual jobs like soldier, detective, politician, artist, doctor, lawyer, or teacher. Why?

One explanation is that work is usually boring. But this seem weak to me. I’m often fascinated to read business-book stories about work teams and firms competing (I’m enjoying The Innovator’s Solution) and Horatio Alger type stories were once more popular in my culture. Furthermore, a recent New Yorker article (quotes below) says similar stories are now very popular in China.

The author of that article seemed displeased by this trend, and what it says about Chinese culture. She talks of “get-rich” “Darwinian” “combat”, “manipulation and deceit”, and a loss of “morals”. And this seems to me a clue about why we don’t tell such stories – they push realism on topics where we’d rather stay idealistic.

Consider that we avoid telling young kids stories about corrupt police and teachers taking advantage of their power, since we are trying to get kids to respect and trust such authorities. Similarly, we avoid telling kids stories about selfishness and betrayal in romantic and sexual relations, as we push idealized accounts of marriage, love, etc. Similarly, we may as adults avoid stories that threaten other ideals.

Stories need conflict. For stories about soldiers, detectives, politicians, artists, doctors, lawyers, and teachers, we know of socially acceptable types of conflict, which do not challenge key ideals. But stories about conflicts in ordinary jobs more easily violate key ideals, and trigger moral outrage.

We don’t mind stories about independent professionals competing to please costumers. But the foragers inside us hates hearing about team members who don’t work entirely for the good of the team, and especially about bosses insisting that things be done their way. Foragers are ok with being “lead” covertly, by someone who has gained their respect and agreement. But taking orders just to get material goods, that seems immoral. The moral priority of war, or of medicine, may make it ok to take orders there. But otherwise, no!

We sometimes have stories about heroic employees resisting an evil boss. But overt moralizing gets boring fast, especially when we realize these employees could just quit their jobs. Worse, we know that most of us don’t resist bosses – we obey them, mainly because we like getting paid. We don’t like admitting that that while we are returning to forager ways in our leisure time, we have become hyper-farmers in our work life. And so in our story worlds, we mostly try to pretend that work doesn’t exist. Props to the Chinese, for facing reality more.

Those promised quotes from that New Yorker article: Continue reading "Missing Work Stories" »

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Sex Ratio Signaling

Nicholas Eberstadt on a “Global War Against Baby Girls“:

An ominous and entirely new form of gender discrimination, … skewing the sex ratios for the rising generation toward a biologically unnatural excess of males, … sex-selective abortion has assumed a scale tantamount to a global war against baby girls. … From a collision of three forces: first, local mores that uphold a truly merciless preference for sons; second, low or sub-replacement fertility trends, … and third, the availability of health services and technologies. … The total population of the regions beset by unnaturally high SRBs [= sex ratio at birth] amounted to 2.7 billion, or about 40 percent of the world’s total population.

Matt Ridley agrees, and is “pessimistic” about this “distortion.” But neither of them object to the lower fertility that is a contributing cause, nor to the morality of the act of abortion. So what exactly is the problem? A simple supply and demand analysis says that selective abortion both expresses a preference for boys and causes a reduction in that preference as wives become scarce. In South Korea this process is mostly complete, with excess boys down from 15% in the 1990s to 7% today (with ~5% as the biologically natural excess).

Eberstadt elaborates:

The consequences of medically abetted mass feticide are far-reaching and manifestly adverse. …[This] establishes a new social reality that inescapably colors the whole realm of human relationships, redefining the role of women as the disfavored sex in nakedly utilitarian terms, and indeed signaling that their very existence is now conditional and contingent.

What “new social reality”? A preference for boys was there and clear to all before selective abortion came on the scene.

Moreover, enduring and extreme SRB imbalances set the demographic stage for an incipient “marriage squeeze.” …  Unmarried men appear to suffer greater health risks than their married counterparts. …. A steep rise in the proportion of unmarried and involuntarily childless men begs the question of old-age support for that rising cohort.

But these are all about things getting worse for men, which is exactly how supply and demand solves such a “problem.” Finally, Eberstadt invokes some externalities:

The “rising value of women” can have perverse and unexpected consequences, including increased demand for prostitution and an upsurge in the kidnapping and trafficking of women. … Such trends could quite conceivably lead to increased crime, violence, and social tensions — or possibly even a greater proclivity for social instability. All in all, mass sex selection can be regarded as a “tragedy of the commons” dynamic, in which the aggregation of individual (parental) choices has the inadvertent result of degrading the quality of life for all.

Now more voluntary prostitution in such a context is not obviously a bad thing. Yes, kidnapping and crime are bad, but there is little mixed evidence such things are increasing due to having more males. There is, however, good evidence that males now compete more by increasing their savings rate, which is overall good for the world.

This topic offers a good example of a conflict between sending desired signals and getting desired outcomes. Since parents who selectively abort girls show favoritism toward boys, it can feel quite natural to signal your opinion that women have equal value by condemning such parents, and favoring policies to discourage their actions. Not doing so can make you seem anti-female. Yet since via supply and demand the abortions chosen by these parents directly increase the value of women, then all else equal discouraging their abortions reduces the value of women. So if you want women to have higher value, your signal is counter-productive.

Of course it is far from clear that the relative value of males and females should be the main consideration here. One might instead argue that if male lives are more pleasant overall, it is good that we create more of them instead of female lives. Yes, supply and demand may eventually equalize the quality of male and female lives, but until then why not have more lives that are more pleasant?

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Old Money Goes Broke

My last post talked about inequality among sand grains, diamonds, firms, and cities. Specifically, that their sizes are distributed like lognormals, but with thicker power law tails. I noted that firms and cities are distributed quite unequally, with a (Zipf’s law) upper tail power near one.

In this post I’ll focus on wealth. In the 1890s Pareto found that the (upper tail of) wealth and income are distributed as power laws. Recent studies of US and world rich folks

estimate powers of 1.3 to 1.5, similar to Pareto’s original findings. This distributes individual wealth more equally than firm and city sizes.

Consider a simple differential equation model:

w‘ = s*w + c*(1-w)

Here the time rate of change w’ of an individual’s wealth w is given by a zero-mean randomly-fluctuating proportional growth s, and a redistribution c. This equation gives a steady state distribution proportional to:

exp((1-a)/w)*w^(-1-a)

This approaches a power law for large wealth, with power a = 1 + c/s. This model illustrates two key points:

1) While a (Zipf’s law) power of one implies no local net change, as with cities and firms, a power above one implies net local change. In particular, the wealth of individual rich (w>1) folk tends to fall on average, while the wealth of individual poor (w<1) folk tends to rise on average. The numbers of the slowly-getting-poorer rich are only held steady by a large influx of recently poorer folks. On average, old money goes broke, while the poorest bounce back.

2) Risk-averse folks (i.e., most everyone) dislike fluctuations s, and would prefer to eliminate them. But when people are forced to suffer larger fluctuations s, the distribution of wealth will spread out, creating more very rich people. Thus policy changes that result in there being more very rich people do not necessarily favor rich people. Policies that induce larger fluctuations s create more very rich but hurt each one of them. In fact, very rich folks are often especially risk averse, investing primarily in bonds. While the US has more very rich folks than other nations, and more than in prior decades, this might be because of policies forcing the rich to suffer more challenges to their positions, and to hold larger stakes in their enterprises.

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The Protection Exception

We have many regulations, justified in many ways. One common type of regulation prevents people from making and enforcing certain voluntary agreements, and one common justification for such regulation is that we protect people from hurting themselves via such agreements. For example:

Chief Justice Robert Bauman ruled in favour of the section of the [Canadian] Criminal Code outlawing polygamous unions. … Bauman said while the law does infringe on religious freedom, it is justified given the harm polygamy causes to children, women and society. (more)

However, almost every such protection comes with one huge loophole, big enough to drive many a truck through: we let people emigrate to other countries. For example, we protect you and your kids from the harms of voluntary polygamy agreements, except that you and your kids may move to a nation that allows polygamy. The same applies to pretty much any other regulatory protection we offer, such as protections against buying unsafe products, hiring unlicensed professionals, paying for sex, or selling yourself into slavery. You are allowed to do any of these things as long as you first move to another nation that allows it.

This raises an obvious question: why do we allow this huge hole in the “protections” we maintain? It would seem to me more consistent to either:

  1. Prevent people from moving to nations that do not preserve the protections we think important, or
  2. Let locals make voluntary agreements that violate our basic protections, as long they plausibly demonstrate that they are so committed to such arrangements that they’d consider leaving the nation to get them.

Its seems pointless to consistently let people leave the nation to evade our “protections,” since after they leave, they aren’t protected. What gives?

Added 11p: Some responses to comments: Continue reading "The Protection Exception" »

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Japan’s Fat Tax

This has been going on for three years, yet I just learned of it:

In 2008, Japan’s Ministry of Health passed the ‘metabo’ law and declared war against obesity. …

Japanese people are normally envied for their lean physiques. In fact, the OECD ranks them, with only 3% population obesity, one of the least obese developed countries. … Comparing the time periods 1976-1980 and 1996-2000, prevalence of obese boys and girls increased from 6.1% and 7.1% to 11.1% and 10.2%. …

The law mandates that local governments and employers add a waist measurement test to the annual mandatory check up of 40-75 year olds. For men and women who fail the test and exceed the maximum allowed waist length of 33.5 and 35.4 inches, they are required to attend a combination of counseling sessions, monitoring through phone and email correspondence, and motivational support. …

Employers or local government … are required to ensure a minimum of 65% participation, with an overall goal to cut the country’s obesity rates by 25% by year 2015. Failure to meet these goals results in fines of almost 10% of current health payments. (more)

Even before Japanese lawmakers set the waistline limits last year, the International Diabetes Federation (IDF) amended its recommended guidelines for the Japanese. The new IDF standard is 90 centimeters (35.4 inches) for men and 80 centimeters (31.5 inches) for women. But the Japanese government has yet to modify its limits. (more; HT Melanie Meng Xue)

Two interesting patterns:

  1. Japanese waist limits are stricter on men, yet since men are taller health-based rules would be stricter on women.
  2. The thinnest rich nation (Japan) passed a big law to make itself thinner just as the biggest medical spending nation (USA) debated a big law (Obamacare) ensuring it would spend more on medicine.

My tentative explanations:

  1. Most societies find it easier to disrespect/mistreat/etc. low status men than low status women.
  2. National policy is more about reaffirming and supporting symbols of national pride than about addressing national needs. The USA is proud of its medicine and Japan is proud of its thinness.

Note that that if you want to regulate health it makes far more sense to regulate weight than medicine, since weight is far more related to health than medicine.

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US Grows Most ’70-’10

What nation increased its total economic consumption most from 1970 to 2010? If you’ve been reading too much about a US “great stagnation” in that period, the answer might surprise you — the US wins by a long shot. The top thirty gains:

United States 583, Japan 183, China 103, United Kingdom 73, Germany 63, France 53, India 47, Brazil 47, Italy 39, Canada 37, Mexico 37, Spain 28, Indonesia 14, Netherlands 11, Greece 9, South Africa 8, Thailand 8, Switzerland 8, Belgium 8, Austria 7, Colombia 7, Sweden 7, Philippines 7, Norway 7, Malaysia 7, Portugal 6, Chile 6, Finland 5, Ireland 5, Denmark 4. (source)

Units are tens of billions of dollars per year. All of Western Europe adds up to 285. Since total world change was ~1460, the US had ~40% of all consumption growth.

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Transferable Citizenship

In 20th century USA, many feared that if a black moved into their neighborhood, “white flight” would greatly lower their property values. In many places it was illegal to sell your house to a black. But it was never illegal to sell your house to outsiders. At the national level today, however, we actually do adopt the extreme “no house selling” analogy: we don’t let folks transfer their citizenship to foreigners.

Imagine each US citizen could transfer her citizenship to a foreigner, as long as she found somewhere else to live, [added: hadn't recently given birth,] and wasn’t about to die, and the foreigner was at least as old, and wasn’t a terrorist, ex-con, etc. Benefits:

  • Citizenship could be collateral for loans for school, houses, etc.
  • We’ll prefer those who’d pay to come, over those who choose to leave.
  • Undesirable poor folk are especially likely to leave.
  • Retirees could be paid to retire more cheaply abroad.

Similar to those old rules against selling houses to blacks, we could also add more restrictions on to whom citizenship could be transfered. At least if we were willing to publicly own up to the racism, ethnism, etc. that such restrictions embodied.

Now folks like Julian Simon and Gary Becker have proposed selling citizenship before, without much success. But it seems to me better marketing to first focus on giving each person a direct benefit: more freedom to use an asset they already own, citizenship. First, get folks to see that selling citizenships makes as much sense as selling houses or club memberships. Then suggest that letting government add to the pool of citizenships for sale might raise revenue, and maybe help the economy as well.

This post was sparked by hearing a talk by Michael Clemens, who noted that we saw no effect on wages from either the Cuban boat lift that suddenly increased Miami’s population by 7%, nor the sudden elimination of migration restrictions within South Africa. Those sound like great pro-immigration arguments to an economist, but alas seem a bit too indirect for the public.

Added: Bryan suggests immigrants pay extra taxes, while Alex suggests giving visas to house buyers.

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Hidden Trade Barriers

Christopher Magee asks why rich nation tariffs are not high. He concludes they are in fact high, but in hidden ways:

In the median industry … over $42 is transferred from consumers to producers for every $1 in efficiency costs caused by the tariff. … The industry lobby should be willing to contribute a lot to the politician to raise those tariffs. And because higher tariffs cause such a small reduction in overall welfare, the policy-maker should be willing to trade higher tariffs for campaign cash. … Thus, instead of asking why there are trade barriers at all, the real puzzle in the literature should be why the trade barriers are not extremely high in most industries.

Here is my assessment … I do not believe that policy-makers care only about social welfare and do not care about campaign contributions. … I also do not think that tariffs are low because users of imported intermediate goods spend a lot of time and money lobbying against tariff protection. … A moderately important reason why tariffs are low is that free riding limits industries’ ability to organise political lobbies. … I also consider the hidden costs of trade barriers as somewhat important in explaining low tariffs. Policy-makers understand the value of good international relations and the cost of trade wars. …

The most important explanation for the puzzle of surprisingly low tariffs is that the political economy literature is largely right: trade barriers are relatively high even in developed countries but they are hidden as quotas and other non-tariff barriers. Unfortunately, these non-tariff barriers, which do not generate government revenue and become more restrictive as the size of the market grows, harm the economy even more than open tariffs do. … In trade policy, what we don’t see is hurting us the most. …

Kee et al. (2004) estimate that the average manufacturing industry in the USA in 1996 had non-tariff barriers that added over 10% to the price of imported goods and that the non-tariff barriers were over three times larger than the tariff rates. In 2004, the ad valorem equivalent of core non-tariff barriers was 9.5% in the USA and 13.4% in the European Union according to estimates from Kee et al. (2009). Trefler (1993) … finds that … the non-tariff barriers were over six times as restrictive as tariffs and that the ad valorem tariff equivalent of US non-tariff barriers was over 20%. (more)

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