Tag Archives: World

Old Money Goes Broke

By Robin Hanson · January 12, 2012 7:30 pm · Comments (8)

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

By Robin Hanson · November 29, 2011 3:50 pm · Comments (55)

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

By Robin Hanson · November 26, 2011 8:00 am · Comments (31)

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

By Robin Hanson · October 22, 2011 9:00 pm · Comments (20)

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

By Robin Hanson · October 21, 2011 4:30 pm · Comments (21)

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

By Robin Hanson · October 15, 2011 9:00 am · Comments (2)

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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Causes Of Corruption

By Robin Hanson · October 11, 2011 11:00 pm · Comments (18)

At one level, corruption can be seen as a problem of multiple equilibria. When bribes are rare, someone who sees a bribe or bribe offer might reasonably expect to be supported for exposing it, and fear being exposed and punished for going along with it. But when bribes are common, one can expect to be punished more for trying to expose corruption.

At another level, however, many policies can reduce corruption. Bounties paid to any who expose corruption can encourage decentralized policing that central powers can find it hard to suppress. And eliminating government agencies whose social benefit is doubtful or moderate, even without corruption, can eliminate opportunities for corruption. I’m told many places are eliminating drivers licenses, to eliminate corrupt issuing of such licenses.

Since policies can discourage corruption, the deeper question is what makes politicians expect to not be rewarded for supporting such policies. Perhaps the people who benefit from corruption have more political information to know how to vote well, and more influence on other voters. In this case they might in effect have more votes, when votes are weighed by voter information and influence. I find this implausible, however.

Perhaps voters find it plausible that the above anti-corruption policies would work, but also find other ineffective anti-corruption policies similarly plausible. If ordinary voters are fooled by these ineffective policies, but those who benefit from corruption are not fooled, politicians may prefer to adopt such ineffective policies. By the time voters find out the policies didn’t work, the politicians may be long gone.

This raises the question: why do politicians have such short time horizons? Why don’t they expect to win by first implementing corruption-reducing policies, and then waiting for corruption to actually go down, before being rewarded by voters? The puzzle becomes more stark when one notices a usual way world-round to get long term project commitment: hire a multinational firm with a global reputation to protect. Yes, NGOs tend to prefer to hire local organizations to achieve charity aims. But they are often “surprised” to see the money stolen and nothing done. When folks really need something done, they hire long-lived multinational firms.

So the obvious solution to reducing corruption, and promoting good policy more generally, is for big multinationals with reputations to protect to run as candidates in local elections! They’d have a long term view that would make wary of making promises they could not keep. Of course upon hearing this suggestion you immediately know why this can “never be”: nationalism. Even voters of basket-case nations couldn’t stand the “humiliation” of publicly admitting they needed to hire foreigners to do something they couldn’t do for themselves.

And so let us admit that a big root cause of political corruption, and of inefficient policy more generally, is nationalism: the reluctance to hire organizations that seem to do the best worldwide in keeping reputations for effectiveness. Of course people do admit this daily in private, as they choose to use products made and distributed by multinational firms. But alas voting is a far fest of idealism, where the ideal of nationalism has more influence.

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Economists’ Best Advice

By Robin Hanson · August 29, 2011 10:20 am · Comments (59)

Ramone:

I am a proud resident of Fairfax County, in the U.S. state of Virginia. Today, I want to warn my fine fellow Fairfax folk: we interact too promiscuously with outsiders! For example, we are allowed to buy things made outside Fairfax, and leave the county to travel or work. Fairfax firms can even choose outsiders as investors, employees, and suppliers.

Such promiscuous interaction risks polluting our precious purity with uncontrolled contamination! Surely we choose to live in oh-so-fair Fairfax because we believe in Fairfax exceptionalism, in our exceptional mix of climate, culture, attitudes, laws, personalities, etc. Yet we allow any of us to risk corrupting this exceptionality via unrestricted mixing with outsiders. For example, we let outsiders move here who might vote for politicians who also don’t share our political values. And lets not forget that terrorists might slip in.

Much of this mixing surely also hurts Fairfax locals who compete with outsiders. Fairfax residents who drive to other counties to eat restaurant meals take business away from Fairfax restaurants. Fairfax firms that hire workers living in other counties take jobs away from Fairfax workers. Fairfax people who read books and blogs written by outsiders take readers away from Fairfax authors. Sure, sometimes we benefit from mixing with outsiders, and sometimes enough to compensate for losses to locals. But no one can prove that this is always the case, or even usually the case.

So, dear fellow Fairfax folks, we simply must be more careful! I’m not saying we should never interact with outsiders, but we must be more selective. There must be oversight – we can’t just let any of us decide for themselves how much they’ll pollute or harm the rest of us.

Convinced? No? What if Ramone had talked about Virginia, instead of Fairfax – would he have made sense then? If not, then why would the same arguments make sense when applied to the United States? Sure clever folk can think up arguments that apply better to nations than to states or counties, just as they can think up reasons why it is better to let in goods or investments than workers. But it seems quite unlikely that such arguments are actually the main reason most people more easily accept exchanging people between counties and states than between nations, or accept outside goods and investment more than workers.

It seems far more likely that people are invoking ancient classifications and fears, regardless of their appropriateness for today’s world. We probably habitually see the invasion of people as more threatening than things, and see workers from other counties and states more as “us”, relative to “them” from other nations. So to believe that our barriers to immigration are for the best, you have to believe in a lucky accident.

Bryan Caplan recently posted on a Michael Clemens article which mentioned: economists typically estimate that eliminating barriers to moving workers would roughly double world GDP, a far bigger gain than eliminating barriers to moving goods or capital! For this reason economists disagree with the public, and favor open immigration:

[In] a questionnaire sent to 210 Ph.D. economists randomly selected from the American Economic Association, … few economists believe that current U.S. immigration levels are too high (16.7%)—although many (29.5%) are neutral on the matter. (more)

Question: “Please tell me if you think it is a major reason the economy is not doing better than it is, a minor reason, or not a reason at all. (0 = Not a reason at all”; 1 = “Minor reason”; 2 = “Major reason”)” Mean answers: Public: 1.22, Economists: 0.2 (more)

We economists tend to expect open immigration to increase overall wealth and value (and liberty), and to reduce inequality. Furthermore, this seems to be the biggest gain we consistently identify. You might not always listen to or believe we economists, but if you can ever be persuaded by us, please let it be on this, economists’ strongest recommendation: open those borders!

Added 7p: Fairfax County is the third richest county in the U.S., and the richest large (>.4M pop) county, and neighbors the two richer but smaller ones.

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Expats Like Cryonics

By Robin Hanson · July 29, 2011 2:00 pm · Comments (20)

At the end of that ABC Good Morning America segment on cryonics, they pointed viewers to a poll on “Would you have your body cryonically frozen after death?”  Out of 15,335 answers so far, 78% said “No, that’s too weird!”, 14% “I’m not sure”, and 8% “Yes, I believe in the science.” Of course these are mostly made up opinions; far less than 8% of the show’s 4.6 million viewers of the show will actually sign up. (Over forty years, only two thousand have signed up worldwide.)

Interestingly, the poll website shows a graphic that breaks votes down by location, and the 274 who live outside the US, probably expats, like cryonics the most – 18% say yes and 19% not sure. Arizona, where the cryonics provider Alcor is located, is second at, 13% yes, 14% not sure, out of 146. (I ignore Rhode Island, with only 26 votes.) Are people more comfortable with moving to foreign lands also more comfortable with moving to the future?!

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Group Moral Licensing

By Robin Hanson · July 23, 2011 11:45 am · Comments (16)

We are more willing to do bad if we have recently done good. We also think we get more excuses to do bad if our group is good:

Five studies supported the hypothesis that people are more willing to express prejudiced attitudes when their group members’ past behavior has established nonprejudiced credentials. Study 1a showed that participants who were told that their group was more moral than similar other groups were more willing to describe a job as better suited for Whites than for African Americans. In Study 1b, when given information on group members’ prior nondiscriminatory behavior (selecting a Hispanic applicant in a prior task), participants subsequently gave more discriminatory ratings to the Hispanic applicant for a position stereotypically suited for majority members (Whites). In Study 2, moral self-concept mediated the effect of others’ prior nonprejudiced actions on a participant’s subsequent prejudiced behavior such that others’ past nonprejudiced actions enhanced the participant’s moral self-concept, and this inflated moral self-concept subsequently drove the participant’s prejudiced ratings of a Hispanic applicant. In Study 3, the moderating role of identification with the credentialing group was tested. Results showed that participants expressed more prejudiced attitudes toward a Hispanic applicant when they highly identified with the group members behaving in nonprejudiced manner. In Study 4, the credentialing task was dissociated from the participants’ own judgmental task, and, in addition, identification with the credentialing group was manipulated rather than measured. Consistent with prior studies, the results showed that participants who first had the opportunity to view an in-group member’s nonprejudiced hiring decision were more likely to reject an African American man for a job stereotypically suited for majority members. These studies suggest a vicarious moral licensing effect. (more)

Citizens of the United States are especially proud of a history of (supposedly) doing good. The US sees itself as having saved the world from Nazism and Communism, of creating and sustaining modern medicine, of educating the world via the best universities, of being the main innovators in computer tech, of upholding the highest standards of civil and gender rights, of being unusually devoted to religion, etc.

All this self-respect, deserved or not, probably makes US citizens more willing to do bad, both individually and collectively. Dear US citizens: please ask yourself how sure you can be that your actions on the world stage are actually for good.

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