Saturday, April 14, 2012

The economics of labor and capital

Recently, the Economist argued that China's astoundingly high investment rate makes some sense because China is a capital scarce country with a very low level of capital per worker compared to the US.

This may well be true. It is certainly the case that it makes sense that China's investment rate is higher than that of a very capital abundant country like the US.

However, the article concludes with some amazing errors, both factual and economic:

the evidence suggests that China has not seriously overinvested. That does not mean rebalancing is unnecessary. Under China’s capital-heavy model of growth, owners of capital have been getting much richer than workers. The main reason for shifting from capital-intensive production to the more labour-intensive, consumer-friendly sort is not to sustain economic growth, but to reduce inequality. Workers could then enjoy more of the rewards of China’s past investment.

Where to begin?

First, as the graph in the article showed, relative to rich countries China is NOT engaged in "capital- intensive production" because they have very little capital per worker. I thought that was the whole point of the first part of the article.  They are decidedly engaged as a simple matter of fact in labor intensive production compared to countries like the US.

Second, if China stops accumulating capital, the owners of capital will continue to make a lot of money and worker salaries will continue to lag. Owners of capital are getting rich because its relative scarcity makes its rental rate high. If capital is paid its marginal product and marginal product diminishes, capital owners make a greater return when the capital stock is relatively small.

In order to raise worker salaries, workers need to become more productive. Part of this can come from workers' own investments in human capital, but a big part comes from the amount of capital per worker in the economy.

If China wants to reduce inequality between the earnings of capital owners and laborers, then they decidedly should NOT "re-balance" away from investment. Of course they should try and make sure that the investments undertaken actually raise worker productivity and are not state led vanity projects or boondoggles.

The greater amount of capital per worker, the higher is worker productivity, the higher will be wages and the lower will be the return to capital. That is the way to diminish the gap.

Raising China's capital per worker is crucial to raising the living standards of Chinese workers.






What do Anthony Davis and I have in common?

A unibrow?

No, not yet at least.

A desire to get as far away from Coach Cal as possible?

Hmmm, maybe

That we serve as unpaid labor for a cartel that makes many millions every year?

Ding ding ding! We have a winner.

Anthony of course was a prisoner of the NBA rule that players cannot enter the League until a year after their high school class graduates. He spent the last year making millions for the University of Kentucky, ESPN, and the NCAA in return for room & board.

I of course am an idiot! As the Economist points out:

In 2011 Elsevier, the biggest academic-journal publisher, made a profit of £768m ($1.2 billion) on revenues of £2.1 billion. Such margins (37%, up from 36% in 2010) are possible because the journals’ content is largely provided free by researchers, and the academics who peer-review their papers are usually unpaid volunteers.

I have published in several Elsevier journals (Journal of Monetary Economics, Journal of Development Economics, Journal of Economic Behavior & Organization, Journal of International Money & Finance, European Journal of Political Economy) and referee frequently for them and many other Elsevier outlets.

In my defense, I do macro and development. the JME and the JDE are the top outlets for my work.

At least Elsevier could hold some kind of tournament and let the winning researchers wear giant t-shirts and cut down the nets!





Friday, April 13, 2012

Que Pasa article on primaries

Chile is considering moving to primaries. I wrote a piece for Que Pasa, a weekly here in Santiago, saying that may not be such a good idea.

If you want the Spanish (edited down to a very short version), it's here.  The slightly longer, English version is here:

Primary elections: Who Needs Them? Michael Munger, Duke University

There are debates in Chile about reforming the process by which parties choose candidates. As a political science professor, frequent expert witness in court, and former candidate myself, I can report on a century of US experience. The short answer is that primaries are little more than poorly designed lotteries. Primaries reward extremism, reduce the accountability of parties, and devalue the brand name that parties depend on to represent the voting public.

For most of US history, the parties were entirely responsible for choosing their own candidates. Since these candidates then had to face each other, and the electorate, in the general election, the parties were obliged to try to balance their own ideological goals with genuine leadership ability and experience in administration. The result was true competition among the party's best, a system that gave us great Presidents such as Andrew Jackson, Abraham Lincoln and Theodore Roosevelt. Of course, the system also often chose weaker leaders, but the point is that the party organization, those who cared about the party, chose the party's standard bearer for the election.

In a primary system, all power is taken out of the hands of the party leadership, and placed into the hands of a fragmented, disorganized group called "the party in the electorate." In most primary elections, turnout is 15% or less, with some votes seeing less than 10% of the eligible electorate. These tend to be the most extreme, most ideological voters, because centrist voters are not interested in primaries. Furthermore, because primary votes often choose between 3, or 5 or even 7 candidates, the results simply reflect random chance. The candidate who happens to be more extreme, or by himself ideologically, will win because all the centrist candidates split the centrist vote. The US system has become increasingly polarized, as extremist voters with ideological motivations have come to dominate the party professionals who are also concerned about electability and leadership.

In one famous example, American Nazi Party leader David Duke decided to run as a Republican in Lousiana. In order to run as a Republican, Mr. Duke needed only to sign a piece of paper. He did not need the permission of "his" party, and in fact the Republicans had no way of stopping him from soiling their party's reputation. Mr. Duke, who routinely wore a full Nazi SS uniform and celebrated the birthday of Adolph Hitler, "won" the 1988 primary for a Louisiana House seat with just 33% of the vote. Many Republicans were forced to work against him supporting other candidates, because they had no control over their own party's candidate.

In a perfect world, a primary system would seem to bring candidate selection and the political process closer to the people. What could be wrong with that? The problem is that, in politics, there are two things that economists call "public good." The first is information: voters don't know much about candidates. The job of parties is to recruit, train, and then put forward the best candidates, the most BLANK leaders. In a primary system, a candidate who is excellent but unknown will never be selected.

The second public good is collective action: the ability to excite voters about the coherent message, and legislative program, of the party. But if the party cannot choose its own candidates, then it cannot possibly present a coherent, attractive program to voters. The party will not even be able to agree among itself, because its own members will represent a confused and incoherent random sample of opinions.

In my work in federal courts in California, Washington, Texas, and Florida, I have written and argued for the position that parties must be able to present a candidate of their choice, and to pursue a legislative program of their choice. Some political scientists go so far as to say that, without responsible parties, democracy itself is impossible. If that is right, and I believe that it is, then a primary system that weakens parties also weakens democracy.

Debt Reckoning: Euro Problems are symptoms, not causes

KPC BFF Amar Bhide has an op ed that raises some important questions about the real problem in Europe.

And, of course, if we have the real problem wrong, we are unlikely to be working on a real solution.

The Grand Game: Inequality Division

The gap between the way I would characterize the events of the last five decades, and how this person characterizes the events of the last five decades.... amazing.

He oscillates between making up facts, misinterpreting facts, and simply ignoring facts altogether. Enjoy.

"A Short History of NeoLiberalism"

Fear....the FROG!

IRB should have turned this down; it involves deception.

So, froggy took a hand.


(Nod to the Blonde)

Mortgage market facts and theories of the financial crisis

A fascinating new paper on the causes (and non causes) of the financial crisis lays out 12 "facts about the mortgage market" that its authors consider crucial for determining the causes of the crisis.

The paper is not overly technical and I highly recommend reading it. It presents a strong case both against the "Inside Job" and the "the government did it" views of the crisis.

It also points out how little we know about the causes of asset price bubbles.

Hat tip to Mark Thoma.




Thursday, April 12, 2012

Big Day

Great day here yesterday. Got some good work done with JP, had a great lunch at an asian restaurant, cold spicy noodles. Worked some more.

Then JP thought we might go out for coffee. So, we did. Except he took me to a kind of place that is uniquely Chilean. A little video for you (NSFW):

The video cafe is more glamorous than the one we went to. Instead of "Cafe Con Piernas," the one we dropped in on was more "Cafe con culos como camiones." What makes a 75 kilo young woman decide, "I'd like to be a stripper in a place that serves nothing but terrible coffee!" The poor things, they were a whole lot bigger than their skimpy outfits could possible contain. But, there, now I have been to a "Cafe con piernas" place, and that will be plenty.

Went to dinner with Eugenio, Carlos, and Ricardo. Comida Peruana place called "Puerto Peru." Much more reasonable on price, but still just fine food. I had the anticuchos de corazon again, and a papas with sauce dish. Also "causa," which I had not seen before. Corazones were completely different, but once again very good. Really fun dinner, laughed so much we couldn't breath. Stories about coauthors. (I'll say no more, except to admit I did have some stories of my own).

Then, it was midnight. Of course, not even leaving to go to dinner until 9:15, and then getting lost, does tend to make it late. Still, Ricardo had enough energy to hit a truly amzing high note when Eugenio turned the wrong way down a one way street and came a hair's breadth from ramming a police car with lights flashing. Since the police car was PARKED, this would have been quite embarrassing. Eugenio managed to extricate the car from this predicament, without a ticket or a scratch.

Tomorrow: I fly to Concepcion, and then we head out into the campo. We'll be verdadera campesinos surenas.

Santiago Street Dogs

Very common for dogs, even packs of dogs, to roam the streets of Santiago.

Sometimes they get hit by cars, and someone will just toss them over against the wall on the sidewalk. I took a picture of this poor guy.

Poor thing, legs all up in the air, just tossed like garbage. Except I noticed he was breathing. So I rubbed his belly. Dog was momentarily startled, but then stretched out his front legs and did that loud "mmmmmmmm" that dogs to do react to belly rubs, and he went back to sleep. Not a very comfy position, but then he's a dog. Living the dog's life, not hit at all, just laying around.

For Those Cold UNC Football Games...

For those extra supplies you'll need at that late season UNC football game.


The police will just think that you are drinking your own urine in the stands, which is not a problem if you wait until after half-time. This will look a little strange for people who appear to be women, but those UNC fans are VERY inclusive.

Wednesday, April 11, 2012

Lengua vacuna

Went to Fuente Chilena, right by the apartment, for dinner last night. Not much of a web site...

But, a very fine cow tongue, lengua vacuna. Fortunately, it did not look like this. Doubt if I could have eaten that.
I got the chacarero platter version, which came with tomatoes, sliced chilis, and a big helping of green beans. Tongue was thin sliced, and both tender and nicely spiced. Aji sauce on top of the green beans....yum.

And, of course, Kross. Lots more Kross.

Quite inexpensive, and a nice setting. Fuente Chilena is a win.

Tuesday, April 10, 2012

Moonface!

It's a tough call, but I'm going to say my favorite musician is Spencer Krug and, as Moonface, he's putting out a new record with some Finnish folks. You can stream the whole album here, and here's a video for one of the songs:



Spencer is coming to Dallas in June, and I'll be there!

Mugabe, the gift that keeps on giving

I thought this awesome "Zanu PF" twitter feed was a satire, but now I'm not so sure, as government ministers are denying Mugabe's illness in more traditional news outlets.

Word is that the 88 year old is finally on his way out, but has a poison pill in place to ensure that he can continue to torment Zimbabweans from beyond the grave.

Yes, he's hand-picked a successor,  and it's "The Crocodile"; aka Emmerson Mnangagwa.

Allegedly, the plan is to keep Mugabe alive for one more election later this year. Then after he wins, he hands power over to the Croc, who is widely credited with orchestrating the violence and chaos that let Mugabe hang on to power after the debacle of the 2008 elections (Mnangagwa has a long and distinguished resume of violence and intimidation, read the article).

In related news, it seems like Bobby M is a Florida State fan:



Monday, April 09, 2012

Ari Kohen: Well-meaning but naive apologist for state brutality

So, my good friend A. Kohen concedes there is a problem.

But the problem is not with the state (because how could there be a problem with the secular God you worship?). The problem has to be with the acolytes, who are confused and not in touch with the true spirit of the loving God-state that, really, deep down, cherishes us all. Dr. Kohen is opposed to capital punishment, which majorities love. But that's just a mistake. Dr. Kohen is opposed to amendments against gay marriage, which majorities love. But that's just a mistake, too. All the rest of the time we should be forced to obey the majority, at gunpoint*. At least, when the majority agrees with Dr. Kohen (because, being a political theorist with absolutely no political experience, he has a special connection to the truth.)

[*"Gunpoint" means the guns held by the state. Dr. Kohen does not believe the rest of us are smart or responsible enough to have guns. Fortunately, as soon as you take a job with the state, Dr. Kohen believes that you become much, much smarter!]

So, let's try it again. It's not like the random strip search of innocent citizens is rare, or anything. The events I have in mind:

1. Little girl draws picture of her dad with a gun. Not shooting the gun. Not a picture of a child with a gun. A picture of an adult man with a gun, drawn in crayon.

2. Teacher goes nuts. Calls the police. Police interrogate 4 year old girl. Police say, "Kid seemed scared." They conclude that the home was unsafe. Alternative proposed explanation: 4 year old girl being interrogated by strange, scary men with uniforms would be enough to explain "Kid seemed scared." That would certainly explain, "Mungowitz seemed scared."

3. Because child was able to describe gun (meaning, presumably, she had seen it?), police arrest father when he comes to pick up daughter. Police STRIP SEARCH the father, arrest him, and jail him. Their "probable cause"? Daughter had drawn a picture of the gun, and could describe it in detail.

4. Police break into house, search house, find gun. It is a clear plastic toy. TRANSPARENTLY fake, if you will. Not remotely resembling a real gun.

5. Even if it were a real gun, there is no reason to believe that it was loaded or handled unsafely. Again, the picture was of the DAD holding the gun. The little girl admired her dad, so she drew a picture of him. Said that her daddy was going to shoot the "bad guys and monsters."

Now, the point. You state lovers will, as always, say that you fall out only with the abuses. And you will likely point to the fact that guns are in fact misused.

But the more constant misuse, the daily, immanent misuse, is the state's misuse of power over its citizens. Dr. Kohen wants to argue that the problems are minor compared to the many advantages of the state forcing everyone to do what Dr. Kohen and his "liberal theory" has decided is good for us.

That separation is an illusion. It is intrinsic to the state to be abusive. And it is the nature of the majority to sanction that abuse, to abet it, even to foment it. I was a little surprised (no, that's a lie, I'm not at all surprised) to learn that school officials defended the arrest/strip search/home invasion without probable cause on the grounds that "you can't be too careful."

No, in fact, you must be too careful. The 4th amendment used to tell us so. Canada, where the events above transpired, doesn't have a 4th amendment, of course. But neither does the US, because we have come to worship the state and its infallibility.

When the dad was released, the little girl was crying and crying. "Are you mad at me, Daddy? What did I do wrong?"

Nothing, child. You just had the misfortune to be born in a modern democracy. I'd say "police state," but that would be redundant.

UPDATE: A lot of the comments here are amazing. Interesting to see how Dr. Kohen's peeps think.

"You can't cook rice with just big talk"

Amazingly, "Jiro Dreams of Sushi" played OKC last weekend and Mrs. Angus and I took it in. LeBron has already written about the film (of course), but something struck me that LeBron failed to mention:

Jiro gets special treatment!

One reason why his diner gets 3 Michelin stars might be because suppliers both save special quality fish and shrimp for him (actually his benighted son). Another might be that his rice supplier refuses to sell the kind of rice he sells Jiro to "outsiders" because "they don't know how to cook it"!

I recommend the movie. It's 1/3 food porn, 1/3 very funny, and 1/3 an exploration of the culture that is Japan.


Sunday, April 08, 2012

Sangucheria Fresia en Bella Vista

Sandwiches are very BIG in Chile. Both in terms of size and popularity.

Yesterday it was 31, unbelievably bright sunshine, the kind of light and blue sky that makes everything just sparkle. My cell phone camera can't really capture it, but here is a view I noticed walking down the street (I was walking; the view was stationary).
Bright red flowers, bright red chimney, bright blue sky. And warm, warm, warm, with no humidity.

JP and I worked on the problem of entrepreneurship and mistakes from 11 until 1 pm, drinking espresso and eating torta chocolate (remarkable torta, chocolate cake with chocolate frosting, though JP, who in this regard could be an honorary female, kept whining, "It could use more chocolate...")

So, exhausted from our labor, we went in search of sanguches. (Sandwich and sanguche are used interchangeably, sometimes on the same menu.) Went to three different places, but all were closed because of Easter weekend.

Then, JP had a brilliant idea: Bella Vista! Lots of tourists there, so all will be open. And, he was right. Bella Vista is an odd comuna/barrio, old houses and awful things like "Hollywood Hamburger" and souvenir shops that sell t-shirts with pictures of Allende, Subcomandante Marcos, Che, and other evil half-wits so lefty Americans can get their tacky souvenir lefty t-shirt and brag back home that they sampled local culture.

But the restaurants, outside of the tourist kennels, are just fine. We went to Fresia, a sangucheria Chilena. The way you order sandwiches is to pick a bread, a meat, and a style of preparation. (Here's the menu, click on the sandwich)

I had had the good sense not to blunt the edge of a noble hunger on torta, and of course it was lunchtime in Chile which means 2:30. Asi, tuve HAMBRE. I ordered the "frica" bread (panes, at the bottom of the menu), and the "mechada" meat (carnes, at the top center of the menu). Frica is a huge, plate-size split roll, and mechada is grandma-style roast beef, the kind she cooked for six hours with carrots and onions in the oven or crock pot.

So, that left style of presentation to choose. Solo (why?), completo, Italiano... but for me the only choice was "a lo pobre." Sandwich with a little mayo, meat, onions... a fried egg and a pile of french fries. Chilean health food, squirted liberally with fiery aji rojo.
A meal that size clearly cries out for cerveza, so I had three. A very nice Kross 500 ml each time, schop (on tap). Kross is one of my new favorite beers. Astonishing. I had no idea. (Side note: In Chile, if you order pale ale, which Kross is NOT, but I'm just saying, ask for "pah-lay ah-lay," and then be amused for an hour, just quietly and by yourself).

Inside, the Colo-Colos were getting hammered, 4-2, by JP's favorite team, Union Espanola. The screams of the Colo-Colinos were very musical, and entertaining. The reason I enjoy the screams of Colo-Colinos is that they are exactly like Yankee fans, except that....actually, that's it. They are exactly like Yankee fans. That's enough. Last time, we had to listen to their horrible songs. This was better.

Had to have a nap at 4 pm. An exhausting Saturday in the southern hemisphere. But I do recommend Sangucheria Fresia, in Bella Vista, as a very fine afternoon outing. You might try the "plateada" as an alternative for the carne. Plateada is a slow-cooked "rib cap," a cut of meat that doesn't exist in the US (it's the part of rib eye steak furthest from the bone, but cut with the grain rather than across it). Plateada and mechada appear, to me anyway, to have very similar preparations, but are different cuts of beef.

I bean you, he beans him, we'll call it baseball

Revenge without responsibility? Judgments about collective punishment in baseball

Fiery Cushman, A.J. Durwin & Chaz Lively
Journal of Experimental Social Psychology, forthcoming

Abstract: Many cultures practice collective punishment; that is, they will punish one person for another's transgression, based solely on shared group membership. This practice is difficult to reconcile with the theories of moral responsibility that dominate in contemporary Western psychology, philosophy and law. Yet, we demonstrate a context in which many American participants do endorse collective punishment: retaliatory “beaning” in baseball. Notably, individuals who endorse this form of collective punishment tend not to hold the target of retaliation to be morally responsible. In other words, the psychological mechanisms underlying such “vicarious” forms of collective punishment appear to be distinct from the evaluation of moral responsibility. Consequently, the observation of collective punishment in non-Western cultures may not indicate the operation of fundamentally different conceptions of moral responsibility.

(Nod to Kevin Lewis)