Remembering the 1933 conference early in the career of a new Administration during a period of economic crisis.

A symposium on whether Greenspan and the Fed was responsible for the housing bubble manages to express two basic problems with macroeconomics. First, the lack of a common analytical language, second a failure to look at the patterns within the housing bubbles across the Western world—basically, that jurisdictions where officials lacked discretionary power over use of land for housing did not suffer bubbles. Of course, the problems of macroeconomics are an argument against officials “managing” the economy, not for it.

The long run patterns of human economic history and how to do, and not to do, things: I was at a Cato Institute function where the British development economist Peter Bauer was giving a lecture, and I had a really smart-ass question: Isn’t the problem with a lot of poor countries, Africa in particular, that there’s corruption and we have to get rid of corruption? And he leaned back on the podium and smiled and shook his head, no. And he said when the United States and Britain were developing in the 19th century, their governments were as corrupt as anything you’d find in Africa, but the governments in Britain and the United States had control of 1 percent or 2 percent of the economy when those countries were growing. In many African countries, the government controls over 60 percent of the economy. That’s the difference.

Utah has the highest consumption of online porn among US States, Montana the lowest: Internet porn subscriptions are particularly widespread in states with young populations, in the 15 to 24 age group, while people over 65 are less likely to subscribe. Income can be a another factor, with each $1,000 increase in average household income pushing up the number of subscribers. Rates also go up with a college education and among people who are divorced, although marriage and graduate degrees have the opposite effect.
"Even when I control for income, age, education, and marital status, Utah residents still consume disproportionately more than people from other states," said Edelman.
Another possibility for Utah's top porn billing may be the scarcity of adult entertainment outside the home.

A new book by an African economist argues that foreign aid has made Africa worse off. A TED talk to similar effect.

The recycling market in China is declining.

Suggesting how Kindle will change the book business.

Based on this experience, it is probably not a good idea to fly Alitalia.

The energy business is booming in Switzerland, but only for tax reasons.

About the economics of prostitution. A blog by an NY escort. (A debate on whether it is wrong to pay for sex will be held in NY on April 21.)

Lessons from FDR and the Great Depression. The talk (pdf).

Greenspan notes a dramatic, global drop in long-term interest rates in recent years and the collapse of a long-standing correlation (1971-2005) between US mortgage lending rates and base interest rates.

Citibank’s CEO is presenting the upside.

In the US, cities are selling federal stimulus money to each other.

Politicians and housing: The same politicians who have been talking about a need for "affordable housing" for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?
The political meaning of "affordable housing" is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit. Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

About a change in SEC rules loosening prudential regulation of brokerage firms in response to a similar loosening by the EU. A classic example of failure by a regulator:
The ironic bottom line is that the SEC unintentionally deregulated by introducing an alternative net capital rule that it could not effectively monitor.
But it gets worse:
Instead of applying a uniform standard (such as a specific debt to equity ratio) to all financial institutions, Basel II contemplated that each regulated financial institution would develop its own individualized computer model that would generate risk estimates for the specific assets held by that institution and that these estimates would determine the level of capital necessary to protect that institution from insolvency. But in generating this model and crunching historical data to evaluate how risky its portfolio assets were, each investment bank gave itself a discretionary opportunity to justify higher leverage. Because each model was ad hoc, specifically fitted to a unique financial institution, no team of three SEC staffers was in a position to contest these individualized models or the historical data used by them. Thus, the real impact of the Basel II methodology was to shift the balance of power in favor of the management of the investment bank and to diminish the negotiating position of the SEC's staff. Basel II may offer a sophisticated tool, but it was one beyond the capacity of the SEC's largely legal staff to administer effectively.
Both Basel II and the law journal comment (even though its point about outclassing is presumably true as far as it goes) show a complete misunderstanding of the nature of comuter models and what they can do and in what circumstances.

Visually comparing conflicts by death toll.

About the international market in tanks.

The Obama Administration is offering a deal on missile defence to the Russians: Poland and the Czech Republic are less impressed.

Problems on the Mexican-American border.

North Korea is threatening civil aircraft in South Korea.

Post with links and thoughts on the attack on the Sri Lankan cricket team.

One of the founders of modern jihadi ideology is very unimpressed with the current leaders of al-Qaeda. Some background.

In the Israeli elections, the parties of military force have done notably better than the parties of negotiation.

Report that an agent for Israel sold Hamas leadership bugged cars. More.

Gaza is having a population explosion. (Not surprising since the international community pays them to have babies.)

Arrested, spend 4 years in Gitmo, released, kill 13 Iraqi soldiers as a suicide bomber. Radical missed or someone radicalised?

The costs of supplying the NATO effort in Afghanistan are rising. It may lead to some unexpected alliances. There are Brits fighting and supporting both sides in Afghanistan. On not being too pessimistic about Afghanistan.

Suggestive traces found at the site in the Syrian desert Israel bombed. About that site. Syrian may be rebuilding its chemical warfare capacity.

At the Hague, a tribunal to hear evidence on the Hariri assassination has begun. A Hezbollah related group has been caught doing a reconnaissance of the site. About that and Hezbollah’s record: I don’t know what Hezbollah will do. For all I know it is only trying to throw its weight around by using empty threats and scare tactics. Non-violent menacing and harassment of Western journalists, for instance, is part of the job description of its “Media Relations” liaisons. An international tribunal, though, is a far graver threat to its patron and ally in Syria than anything the likes of me could ever write in an American magazine. It’s entirely possible that nothing will happen. It’s also possible that Hassan Nasrallah, for whatever reason, feels more emboldened or daring – or perhaps more dangerously desperate – these days.

A lot of ominous tension in Southern Lebanon. A report from the streets of Beirut on Lebanon. Hitch has a view about signs with swastikas on them, which led to trouble. An interview with Hitch after his roughing up. Interview with Michael J Totten.

About prospects in Iraq now complete US withdrawal is scheduled for 2011. A tree-hugging anti-war feminist Brit development economist became an admirer of the US military.

A Zambian-born former bond-trader with a few things to say on the destructive effects of aid on Africa.

Nice collection of ways of saying it is not so bad really.

In Italy, a report claims that revenue to the Mob is surging, making them Italy’s biggest business.

American Express is offering selected customers a US$300 cash bonus to close their accounts. About that.

For those who remember the original Milton Friedman suggestion, the headline is amusing.

Study finds that NBA players show no discrimination by race is assisting other players on the field. Highly competitive activity where discrimination has a real and immediate cost. Go figure.

A study of the porn market finds that Utah has the highest subscription rates (pdf). The burgeoning market for female sex toys.

Vaclav Klaus defending free markets.

Arguing that further wild swings in macroeconomic policy is not a good response to a crisis partly caused by wild swings in policy.

In Iceland, the men screwed up so the women get to clean up. (Cognitive conformity in decision-making, it’s a bad thing.)

Unemployment is soaring in China.

The US economy is shrinking much less than other major economies.

Washington’s economy is expected to grow, New York’s to shrink, over the crisis.

About how to create a marketing disaster, the Edsel: Part of that was the overall economy--total new car sales in the United States declined 31% from the 1957 to 1958 model years--but most of the Edsel's problems were specific to the Edsel. Strangely, they did not bailout out the car manufacturers …

About policy options for conservatives: By taming inflation, restructuring the tax code, and thinning regulatory undergrowth, Reagan made the welfare state sustainable, something liberals had proved unable to do.

About bank nationalisation and ways to do it. More. About what to do with Freddie Mae and Fannie Mac and their enormous liabilities now officially assumed by the US taxpayers.

A case where (believing) a correlation was causation. An unusually clear piece on what is wrong with relying on computer models. About the cult of the copula. Paul Volker praising the Canadian banking system (the brief description of which sounds like ours) and being scathing about financial engineering.

About tactics during the battle of Okinawa (pdf).

The US armed forces provide a uniformed escort to all casualties. One officer talks about being an escort. An experience which has been made into a telemovie.

Examining the jihadis: Only a few leading clerics have condemned suicide attacks as haram, or something strictly forbidden by Islamic law, because suicide itself is haram. Others say suicide attacks are not justified against Muslims, but can be carried out against the forces of Western infidels. Hardly any of Pakistan's Islamic politicians with large followings have openly condemned al-Qaeda and its allies. In fact, most religious leaders are, at least publicly, still in a constant state of denial, insisting that al-Qaeda does not exist, that it is a fictitious creation of the American government as a way to control the Muslim world.

Report that the US thwarted Israeli plans to bomb Iran.

Oz troops in Afghanistan exact some revenge.

The link between high birth rates and conflict and how the UN subsidises Palestinian fertility (aka production of cannon fodder): The reason for Gaza's endless youth bulge is that a large majority of its population does not have to provide for its offspring. Most babies are fed, clothed, vaccinated and educated by UNRWA, the United Nations Relief and Works Agency for Palestine Refugees in the Near East. Unlike the U.N. High Commission for Refugees, which deals with the rest of the world's refugees and aims to settle them in their respective host countries, UNRWA perpetuates the Palestinian problem by classifying as refugees not only those who originally fled their homes, but all of their descendents as well.

Does Black Hawk Down portray an American war crime? About fighting folk who hide among civilians.

About Hamas and Israeli tactics: Hamas’s tactics are clearly designed to maximise (Palestinian) civilian casualties. Israel accuses Hamas leaders of hiding in diplomatic missions, a hospital basement … Fatah official accuses Hamas of war crimes. About the conflict and the Geneva conventions. About the purposes and context of the Israeli action. About real and not “real” people, and deaths the Guardianistas “care” about and those that they don’t. Hamas rejects any suggestion of peacekeepers. Hamas as not a Palestinian national movement but as the Palestinian branch of a global Islamist movement with global ambitions.

Why Israel cannot make peace with Hamas (who, as is somewhat common in the Middle East, are also typically Holocaust deniers) What a phantasmagorically strange conflict the Arab-Israeli war had become! Here was a Saudi-educated, anti-Shiite (but nevertheless Iranian-backed) Hamas theologian accusing a one-time Israeli Army prison official-turned-reporter of spying for Yasir Arafat’s Fatah, an organization that had once been the foremost innovator of anti-Israeli terrorism but was now, in Mr. Rayyan’s view, indefensibly, unforgivably moderate.

About per capita income and its geographical distribution in the Roman Empire.

About militarising foreign aid (pdf).

Saudi supertanker has been seized by Somali pirates, the largest ship ever hijacked. Paper on the economics of piracy (pdf).

Singapore will allow payments to providers of human kidneys and eggs.

Rupert Murdoch is positive about the future of newspapers.

Critiquing “sustainability”: Limiting development to what ‘nature’ provides therefore makes people vulnerable to her whims. Drought is ‘natural’. Famine is ‘natural’. Disease is ‘natural’. They are all mechanisms which, in the ecologist’s lexicon are nature’s own way of ensuring ‘sustainability’. They are checks and balances on the dominance of one species.

Private investment in the US in the 1930s. More. Returns on investment did not recover until much later.

The development that led to the Kelo case has completely fallen through.

There are problems in the way the US spends money on infrastructure.

An online carpool service in Ontario is fined for being an unregulated transportation service and has lots of strict limits put on its use. Clearly, the folk of Ontario have to be protected from “too much” initiative and transport choices.

About the tendency for US public school teachers to send their kids to (pdf) private schools: in Chicago it is particularly strong. (The phenomenon is hardly unknown elsewhere.)

G20 leaders agree on financial and accountancy regulation reforms.

An article from 2000 about the Community Reinvestment Act and what was going on in the US mortgage market: Looking into the future gives further cause for concern: "The bulk of these loans," notes a Federal Reserve economist, "have been made during a period in which we have not experienced an economic downturn." The Neighborhood Assistance Corporation of America's own success stories make you wonder how much CRA-related carnage will result when the economy cools. The structure disconnected loans from income and effort at the lower end of the market creating risk problems which fed through into other lending: derivatives disconnected income from oversight at the big end of the market: inadequate prudential regulation allowed the latter to grow way past good practice. A perfect storm of too much and too little regulation mediated by perverse financial ingenuity.

About the US housing market and the crisis: This year's Nobel laureate in economics, Paul Krugman, pointed at this distinction when he differentiated between what he called "Flatland" and the "Zoned Zone". In "Flatland America", Krugman explained, new housing demand directly led to new housing supply. The cities in Flatland simply grew outwards and built new houses at the fringes. This extra supply kept a check on house prices, which increased only modestly, keeping houses affordable.
But in the "Zoned Zone", things were more difficult.
In these parts of the country, extra demand could not lead to more supply, since stricter land-use regulations prevented the building of more houses. The only way the markets could react to an increase in demand was with higher prices.
Krugman's simple but straightforward economic logic has been confirmed by Demographia, an urban research group. In a study of 107 local housing markets in the US, it found that housing was least affordable in the ones most heavily regulated by town planners. Where fewer planning controls were in place, houses were more affordable and house prices were more stable over time.

About capital destruction by US auto-makers and being time to cut them, not subsidise them. Arguing managed bankruptcy is the way to go. GM is offering buyouts to its UAW workers: The current veteran UAW member at GM today has an average base wage of $28.12 an hour, but the cost of benefits, including pension and future retiree health care costs, nearly triples the cost to GM to $78.21, according to the Center for Automotive Research.
By comparison, new hires will be paid between $14 and $16.23 an hour. And even as they start to accumulate raises tied to seniority, the far less lucrative benefit package will limit GM's cost for those employees to $25.65 an hour. About comparative labour costs. Arguing for the bailout. A response. More links.

A nice A-Ha parody video.

A campaign to have the right to marry cartoon characters.

A new blog by two ANU academies on mainland SE Asia.

Arguing pro and con for a league of democracies.

Camille Paglia’s collection of poetry made it onto the US best-seller lists: she writes about poetry.

Reviewing a book on the new forms of anti-Semitism.

On the importance of moral arguments in public debate.

Details of a book published by a retired academic of Polish background on Stalin, Stalinism and the human costs thereof. Defining different forms of socialism: (the claim that Nazism had no elements of socialism is a little over-stated).

The Beijing regime cracks down on dissent in Tibet.

Author Michael Crichton dies. Appreciating work and his unusual life. Appreciating his fun with ideas.

Chinese official sacked for molesting a girl after public pressure.

Reviewing a book which critiques humanitarian aid and its organizations as spreaders of Western values and being complicit in Western interventions.

The baleful effect of Leninism and the Soviet Union on world history since 1917 reaches into some unexpected places. One of the basic ideas behind foreign aid is what was known as the Harrod-Domar growth model (despite the fact that Domar’s original article discussed business cycles in the US and he repudiated the fundamental assumption in 1957). The (simple and simplistic) idea was that production was proportionate to machinery, so investment was basic to growth, so low saving levels were a basic problem so by supplying cheap capital foreign aid could lift investment levels and thus economic growth. Walt Rostow, presidential adviser and policy activist, was instrumental in pushing the investment=growth idea for foreign aid.

Where did Harrod, Domar, Rostow and other economists get the notion that investment=growth? From the experience of mass unemployment of the Great Depression (which suggested that rural “surplus labour existed which could be used without cutting rural production [p30ff]) and observation of the apparently successful forced industrialisation model of the Soviet Union. ( a sad irony )

Easterly starts the book with some blunt facts and figures about why economic growth matters (dramatic reductions in infant mortality to start with [p.8ff]). Despite all that sneering about trickle down theory, the evidence shows quite clearly than increases in average income translate quite directly into increases in income for the lowest fifth of given societies. Economic growth is good for the poor, economic contraction very bad for them. ( problems of growth )

Easterly’s basic theme is the same as Steve Landsburg, The Armchair Economist. People respond to incentives: all else is commentary(p.xii). They do not respond to good intentions. Nor to inputs. But to incentives. Growth happens because a self-reinforcing pattern of pro-growth incentives becomes established in a society and it doesn’t happen if they don’t. Merely handing over money does not change the underlying pattern of incentives. Worse, it may actively undermine attempts to change those underlying incentives.

What country has had the highest rate of per capita income growth since 1960?
What was the deadliest conflict since World War II? (Answers below)

In the last five decades, the West has spent $US2.3trillion in foreign aid (i.e. almost a fifth of the annual output of the US economy [p.4]). Money overwhelmingly handed out by governments and non-profit organisations. It has overwhelmingly been wasted (or even been counter-productive). In that time, hundreds of millions of people have been lifted out of poverty. They have been lifted out of poverty overwhelmingly by for-profit activity.

I have two objections to socialism. (1) Its tensions with human freedom. (2) That it doesn’t work. (Or, to be more precise, public ownership’s patent, enduring tendency towards declining productivity.) Even at the most basic level of eliminating poverty, capitalism works far better than socialism. And it does so for a simple reason. Socialism inherently becomes increasingly bad at creating and using capital. Capitalism produces capital, and produces it at an accelerating rate. The more capital per person, the wealthier folk are. Hence capitalism’s far greater success at lifting folk out of poverty.

Both socialism and capitalism have incentives. Capitalism just has generally much better ones because capitalism inherently incorporates accountability and feedback (are people buying? are we making a buck?), which socialism doesn’t.

These thoughts were prompted by reading The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good. ( informed analysis )

I have long been a sceptic about foreign aid, having early on been impressed by the argument of Peter Bauer (now thoroughly vindicated). My examination of indigenous policy in Oz has deeply reinforced my scepticism.

But it is very hard to have an intelligent debate on foreign aid (or indigenous policy for that matter). For too many folk, it is a matter of Look at me, I’m Virtuous, I Support More foreign aid. Look at him, he is Wicked, because he Doubts the Value of foreign aid. Truth is hardly likely when the “correct” answer is pre-determined. As Easterly points out, the problem is precisely that the poor are powerless, and the powerless are easy to project our preconceptions on to.

So the failures mount. In all sorts of forms. White Man’s Burden is a very humbling book. But one anyone at all interested in the wider world should read. For the ill-informed, heedless incompetence of the Iraq post-invasion occupation is of a piece with the ill-informed, heedless incompetence that created Iraq in the first place (T.E. Lawrence's dispatches. The young officer had informed his Colonial Secretary [Winston Churchill, as it happened] that the sprawling territory that would one day be called Iraq was in fact three distinct entities with natural capitals in Basra, Mosul, and Baghdad. It was the estimate of Lawrence of Arabia that the three Ottoman provinces could be held together only at the point of a gun. That estimate proved to be durable. Even Saddam's long tenure offered no evidence to the contrary.) And White Man’s Burden eloquently explains how deep, pervasive and entrenched such failures are and why.

We all know that in most countries the Ministry of Defense is in charge of attacking other countries and that the Ministry of Employment presides over the unemployment lines. Cameroon’s Ministry of Tourism is in that noble tradition. Its job is to discourage tourists from getting into the country (p.177).

This is typical of the engaging style of Tim Hartford’s The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor—and Why You Can Never Buy a Decent Used Car! a fun and easy-to-follow trip through modern (micro) economics applied to situations around us. Hartford works for the World Bank and writes a column for the Financial Times, so he understands the trick is to communicate but in a way that informs rather than merely dazzles. ( informative fun )

Economics and economists suffer a lot of criticism. Some of it is for being jargon-heavy and highly abstract or stylised. A lot of that is fair criticism, and thankfully does not apply to The Undercover Economist. Early in the book, Hartford is inclined to use that irritating Americanism free markets when what he clearly means is open markets but one of the strengths of the book is an avoidance of jargon and engaging concern for details of the world around us.

Much of the rest of said criticism is because economics and economists produce the wrong answers. That is, they are too kind to capitalism, markets, private property, corporations, etc. Most of that criticism is just ideological antipathy and not greatly concerned with how the world is or isn’t. Indeed, it typically represents irritation (or worse) with how the world is and often is part of active barriers to understanding the same (since certain answers are “ruled out” regardless of whether they are true or not*). The informative intelligence of The Undercover Economist is a fine antidote to such nonsense.

*After all, if socialism worked—rather than having the persistent pattern of declining productivity—there would be a lot more of it, and if capitalism didn’t work, there would be a lot less of it.

Stuart/Alysdair recently suggested that I write up for publication my point about silver flows and the similarity between C16th and C17th Iberian politics with contemporary Arab politics. Asking economic historian Eric Jones for advice, he recommended I look up the resource curse literature. So I purchased a (second hand) copy of Richard M. Auty’s Patterns of Development: Resources, Policy and Economic Growth, a ten-year old text on development economics. (It does suffer a little from being written before the 1997 Asian crisis.)

It proved to be readable and informative survey of what has been learned from 60 years or so experience with developing nations. Precisely because all parts of the globe are dealt with, one gets a much more coherent view of what does, and does not, work, rather than the cherry-picking of congenial cases which, alas, often passes for analysis.

My original interest was in the effect of massive resource flows on the political institutions of countries. Auty is more concerned with issues of economic development, but there is useful overlap. ( what works )

Auty concludes with a sensible discussion of the importance of environmental issues, and different approaches thereto. An informative book.