Saturday, July 07, 2007

Is This So Wrong?

Dancing garbage, some big green furry things, and delightful 25 year old Japanese women doing the whole "schoolgirls in white dresses" that Japanese men seem to like so much.

I'd recycle for them. The women, not the green things. The green things are holding pieces of paper that actually can't be recycled. Maybe composted. Maybe that is what they were going for.

Have to admit, I didn't pay that much attention to the green things. Quite taken by the schoolgirls, though. In a paternal, sort of observer way, of course.

(Nod to BH, who found it)

Friday, July 06, 2007

I gotta Jones for keeping up wid da Joneses

Some of you may have seen this when it came out, two years ago. I missed it, so I bring it to you now.

From the QJE, August 2005, Vol. 120, No. 3, Pages 963-1002....(Luttmer's personal link to a PDF of the paper)

"Neighbors as Negatives: Relative Earnings and Well-Being," Erzo F. P. Luttmer,

Abstract:
This paper investigates whether individuals feel worse off when others around them earn more. In other words, do people care about relative position, and does "lagging behind the Joneses" diminish well-being? To answer this question, I match individual-level data containing various indicators of well-being to information about local average earnings. I find that, controlling for an individual's own income, higher earnings of neighbors are associated with lower levels of self-reported happiness. The data's panel nature and rich set of measures of well-being and behavior indicate that this association is not driven by selection or by changes in the way people define happiness. There is suggestive evidence that the negative effect of increases in neighbors' earnings on own well-being is most likely caused by interpersonal preferences, that is, people having utility functions that depend on relative consumption in addition to absolute consumption.


This is an old problem, but the empirical work is quite interesting. Here's the problem: consider two societies.....each has exactly two classes of people, the numerous poor and small number of rich. Assume also that the numbers, and proportions, are identical in the two societies. The two are:

Society Alpha, where the poor receive $20k income per year, and the rich receive $40k income per year.

Society Beta, where the poor receive $25k income per year, and the rich receive $120k income per year.

Society Beta is better, right? First, by the Pareto criterion, EVERYONE is better off in Beta than in Alpha. Second, one could always redistribute, and take some from the rich in Beta, and make the poor even better off.

This paper would seem to raise questions about the first claim. Pareto comparisons based on wealth have nothing to do with welfare. The poor in Beta are MUCH worse off, because the disparity between rich and poor is greater. And there may be no means of redistributing enough to make this difference go away, unless you do away with the rich entirely.

Oh, society of frailty, thy name is growth.

(Nod to KL, who actually believes in redistribution, but isn't envious of the rich. At least not much)

Wimbledon Update

Finally a dry day for the backlogged mess that is Wimbledon and some very strange results:

Justine Henin wins the first set 6-1 but then eventually loses to Marion Bartoli of France.

Andy Roddick wins the first two sets and is up a break in the third but then eventually loses to Richard Gasquet of France.

This next result is a bit more understandable as it involves a "dangerous floater" and isn't such a major choke job as the first two, but Anna Ivanovic (the 6th seed) loses 2-6, 4-6 to Venus Williams (23rd seed).

So the women's final will be Venus Williams v. Bartoli. Gotta like Venus to uphold my pick that a Williams sister will win this year.

Men's semis are going to be Federer v. Gasquet and Djokovic v. Nadal. Djokovic has played back to back marathon matches, Gasquet went to 8-6 in the fifth set today, Nadal at least had an easy match today, Federer has only played one match in the last 5 days. I think its going to be a rematch of the French final and I can only hope the same outcome will prevail.

Thursday, July 05, 2007

Goin' to Arusha

No it's not a new song by the Mountain Goats, its the first leg of our upcoming vacation itinerary.

Last year the Economist named Tanzania "The country that deserves the money it gets" in an article entitled "Bye-Bye Poverty" which says in part:

Tanzania's relative lack of graft means that some donors now put their money directly into the national budget with few strings attached. Britain hopes to deposit $170m a year into Tanzania's coffers in this way for the next few years

While this may help dilute colonial guilt in Blighty (Tanzania was a British colony from 1919 till independence), I respectfully submit that government to government transfers will never bring about development.

Rather, I believe they will mainly bring about a long lived recipient government. And indeed, Tanzania has been a one party state since independence, namely the CCM party founded by Julius Nyerere, the leader of their independence movement.






The Check was in the Mail

In a series of recent papers, Micheal Dooley, Peter Garber, and David Folkerts-Landau have been arguing against the textbook open economy macro model (and said model's dire predictions about the current set of global financial accounting imbalances). They argue that since Sovereign debt is not really collectible, poor countries must post effective collateral to get financial flows from rich countries. They further argue that past exports as represented by the US current account deficit are precisely this collateral.

In other words, China has given us a ton of stuff in exchange for t-bills. If they expropriate US or other rich country FDI, the US cancels their claim to the t-bills and we get the stuff for free. That is to say, China's huge reserve holding of dollars is just collateral against any appropriation of the FDI being done there.

Here is how they put it in their latest NBER working paper (gated, sorry):

The nature of the social collateral is so obvious it is hard to see. If the center cannot seize goods or services after a default, it has to import the goods and services before the default and create a net liability. If the periphery then defaults on its half of the implicit contract, the center can simply default on its gross liability and keep the collateral. The periphery's current account suplus provides the collateral to support the financial intermediation that is at the heart of development strategies. The interest paid on the net position is nothing more than the usual risk-free interest paid on collateral.

This is really cool.

Finally, a link to other Dooley et al papers on this topic along with criticisms of their approach is here.

UPDATE: Interesting comment over on Marginal Revolution, on this topic....

There's a practical problem with canceling China's dollar assets: The enormous secondary market in T-bills means that China can easily sell them to some third party who could redeem them at face value. I can't think of any way to close this loophole without effectively shutting down all trade in T-bills, which has enormous negative consequences for the U.S.

Sounds right, and raises an interesting problem. Even if sold at a discount, a quantity of t-bills that large might well drive prices down, and therefore raise interest rates a LOT at the next auction. Good point, Ammianus.

UPDATE II: A correction, from Belligerati. So, never mind on the secondary market way out. Angus was right all along.

Another nice round number

KPC recently reported on China muscling the World Bank out of reporting on the extremity of the pollution situation there. However, in 13 months the world will descend on China for the 2008 summer Olympics and its hard to imagine the Chinese government being able to keep a lid on each and every reporter (though if anyone can, they can!).

It looks like they have a plan B though: banish a few autos from the streets during the games. Check out the story here: Beijing to ban a million cars in clean air test.

I wonder how long these guys can continue to get away with playing the shell game on us.

Grumpy old men

Why do past icons often age so ungracefully? Jack Nicklaus for example takes the fact that Tiger Woods is on a faster winning pace than his to to be clear evidence that Tiger's rivals are somehow lesser than Jack's rivals. Also there is the constant sniffling about the "equipment".

Now Pete Sampras joins the club as summarized by Harvey Aarton in the NY times article: Sampras Jabs a Finger in Federer’s Eye. Sampras seems to be saying that everyone is a wussy boy playing into Federer's hands by not serving and volleying on the grass.

“If there is anything Roger doesn’t like to see, it is someone coming in and serving and volleying, someone putting pressure on him,” Sampras said. “I think my game matched up reasonably well against his.”

Now it is weird for an old-timer like me to see the grass all burned out on the baseline and lush and green up by the net at Wimbledon. Its kind of a photo negative of the old days. However perhaps Pete has forgotten that in his next-to-last Wimbledon (his last one was a second round loss to the immortal Georg Bastl), a pre-prime Federer beat him (and yes Pete was playing serve and volley tennis).

I am guessing Pete sees his most majors won position going down the tubes and isn't real happy about it.

Now I am about three orders of magnitude away from icon status at least, but Robin is under standing orders to smother me with a pillow if I start complaining about how new equipment has made publishing too easy for the youngsters. So far the worst I've done is tell my econometrics class how when I started out we had to use punch cards and could basically only run two (simple) programs a day.

Tuesday, July 03, 2007

Mahmoud Ahmadinejad is a lot smarter than I thought

New evidence comes from this AP Story reporting that the Iranian president has turned down Oliver Stone's request to make a movie about him (without even taking a meeting with Oliver)!

Does anyone else wonder if he is just holding out for Michael Moore??

Hey I thought the World Bank was OUR Puppet

But from the Financial Times comes the story that the Chinese government engineered the removal of nearly a third of a World Bank report on pollution in China because of concerns that its findings on premature deaths could provoke "social unrest".

The article says that pre-censoring, the WB report claimed that about 750,000 people die prematurely in China each year, mainly from air pollution in large cities.

And apparently I've been hiding under a rock somewhere because the FT article takes as an already given fact that sixteen of the world's 20 most polluted cities are in China

To me, this has implications for several issues.

First, it seems like China is in trouble. While their reported growth rates have been spectacular, they still have a very very long way to go to catch the up to the developed countries and it seems like the country will be a smoking cinder long before they do.

Second, man the WB is full of wusses!!

Third, doesn't this kind of potential environmental meltdown have to factor into any analysis of our trading relations with China? Yes we get cheap poison dogfood and all, but aren't these pollution costs in some way relevant too?

Monday, July 02, 2007

Life imitates Art







(click the graphic for a readably sized version)

Like V2 bombs and Tyrone Slothrop, the island nation of São Tomé has gotten things slightly out of order. In particular, even though no oil has been actually produced (Chevron drilled but came up dry), they already have a full blown oil corruption scandal in the works. Its a good one too with a dirty US congressman (William Jefferson), global crusader Jeffery Sachs, and a Texas firm fronted by a pal of Ousegun Obasanjo, the ex-ruler of Nigeria.

Seems more like BrokenViews.com to me

Speaking of anniversaries, we are also at the 10th birthday of the 1997 Asian Financial Crisis. Today's WSJ provides bewildering commentary on the lessons of the crisis from a site called breakingviews.com.

According to them, one important lesson that the US learned from the crisis is "Don't borrow in foreign currency. The US borrows almost exclusively in dollars." Um, excuse me but did the US not know this before the summer of 1997? Is there a major break in the time series of "foreign denominated borrowing by the US government" at that time? Does such a time series even exist? The article gives no data at all to support what to me is a risible claim.

We are also told that emerging markets learned "one big thing" from the crisis, namely "Don't rely on fickle overseas funds". The evidence? "Rather than borrowing, the Asians are now accumulating dollars. Indonesia and Malaysia, two of the crisis countries a decade ago are running trade surpluses of more than 10% of GDP." Sorry, but countries do not directly choose the size of their foreign inflows, unless they impose strict capital controls which none of these guys have done (though the closest to doing so was Malaysia). Current/Capital account outcomes are produced by a combination of the relative productivity of a nation's firms, the relative attractiveness of a nation's markets to foreign investment, and the relative economic policies of the country (though this last factor really can be subsumed into the first two).

It is incredibly simplistic to point to a current account number and claim to be able to say exactly what forces have produced it. One would need to produce evidence that Asian governments are undertaking even more export friendly policies than they did pre-1997 or show that they are actively refusing / discouraging foreign investment funds (a lot of them, not just Malaysia).

In other words, at the level of evidence being considered, one could just as easily say that foreign investors learned one big thing from the crisis, namely not to throw money at fickle emerging markets.

Sunday, July 01, 2007

Good News from Mexico: Democracy is working

Its been a year since the ultraclose Mexican Presidential election installed Felipe Calderón in Los Pinos and AMLO (Andres Manuel Lopez Obrador, aka Peje) in the Zócolo protesting. At the time prospects were not good for the second post-PRI presidency. Calderon seemed defensive and not dynamic and the charismatic Peje was promising to overturn the election and/or run a shadow government.

AMLO is still out there plugging his new book (La Mafia nos robó la Presidencia) and trying to rally the faithful, but it is no longer working. Calderon has been able to work with the Congress in a way his predecessor Vicente Fox never could and enjoys a 65% popularity rating, while many of Peje's erstwhile supporters say that if they had it to do over again, they would not vote for him.

In 2000, Vicente Fox's election made Mexico a real Democracy and the 2006 election has helped that new Democracy mature. This is good news from south of the border.

Upon further review.....

.....my pick of Safin to upset Federer was a bit off as the listless underachiever Safin turned out to be the personality inhabiting the body that day. However, undaunted, I offer up this pick for the women's side: a Williams. Serena is closing in on another match-up with the lil cheater Henin and Venus is heading towards Sharapova. I favor Serena but think it'll be one or the other hoisting the big plate next Sunday.

It probably worth pointing out that these two and Laura Granville are the only Americans left in the women's draw and Andy Roddick (aka Roger Federer's proverbial rented mule) is the only American man left. Right now, Serbia is a greater tennis power than the USA and I blame George Bush for that! On the bright side, its an improvement over the French Open for American tennis as there Serena was the only American to make it out of the third round.

On the men's side, I'll take the field over Federer but that is just out of spite.