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Mark Kleiman on Mexico’s drug violence

Mark Kleiman has an interesting idea on how to fight Mexico’s drug violence.  It’s short enough to quote in full:

Drug-related violence has claimed 35,000 Mexican lives since 2006, and the level of bloodshed is still rising. With legalization not in the cards and an all-out crackdown unlikely to succeed, good options seem to be scarce.

Here’s a candidate, based on a strategy of dynamic concentration:

Mexico should, after a public and transparent process, designate one of its dealing  organizations as the most violent of the group, and Mexican and U.S. enforcement efforts should focus on destroying that organization. Once that group has been dismantled – not hard, in a competitive market – the process should be run again, with all the remaining organizations  told that finishing first in the violence race will lead to destruction. If it worked, this process would force a “race to the bottom” in violence; in effect, each organization’s drug-dealing revenues would be held hostage to its self-restraint when it comes to gunfire.

This is parallel to David Kennedy’s “pulling levers” strategy to deal with gang violence.

Would it work?  Hard to guess. But it might.  That’s more than you can say for any of the other proposals currently on the table.

It’s a nice idea, but it would probably suffer somewhat in the politics.  If, in order to ensure the downfall of the most violent gang, the government needs to divert resources from fighting other gangs, it may look to some as though they were going easy on crime in one area in order to fight it properly in another.  It could also be tainted with a brush of tacitly legalising the trade for all non-violent traffickers.  Still … cool idea.

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Ayn Rand, small government and the charitable sector

The Economist’s blog, Democracy in America, has a post from a few days ago — “Tax Day”, for Americans, is the 15th of April — looking at Ayn Rand’s rather odd view of government.  Ms. Rand, apparently, did not oppose the existence of a (limited) government spending public money, but did oppose the raising of that money through coercive taxation.

Here’s the almost-anonymous W.W., writing at The Economist:

This left her in the odd and almost certainly untenable position of advocating a minimal state financed voluntarily. In her essay “Government Financing in a Free Society“, Rand wrote:

“In a fully free society, taxation—or, to be exact, payment for governmental services—would be voluntary. Since the proper services of a government—the police, the armed forces, the law courts—are demonstrably needed by individual citizens and affect their interests directly, the citizens would (and should) be willing to pay for such services, as they pay for insurance.”

This is faintly ridiculous. From one side, the libertarian anarchist will agree that people are willing to pay for these services, but that a government monopoly in their provision will lead only to inefficiency and abuse. From the other side, the liberal statist will defend the government provision of the public goods Rand mentions, but will quite rightly argue that Rand seems not to grasp perhaps the main reason government coercion is needed, especially if one believes, as Rand does, that individuals ought to act in their rational self-interest.

The idea of private goods vs. public goods, I think, is something that Rand would have recognised, if not in the formally defined sense we use today, but I do not think that Rand really knew much about externalities and the ability of carefully-targeted government taxation to improve the allocative efficiency of otherwise free markets.  I think it’s fair to say that she would probably have outright denied the possibility of anything like multiple equilibria and the subsequent possibility of poverty traps.  Furthermore, while she clearly knew about and despised free riders (the moochers  in “Atlas Shrugged“), the idea of their being a problem in her view of voluntarily-financed government apparently never occurred to her.

However, this does give me an excuse to plump for two small ideas of mine:

First, I consider the charitable (i.e. not-for-profit) sector as falling under the same umbrella as the government when I consider how the economy of a country is conceptually divided.  In their expenditure of money, they are essentially the same:  the provision of “public good” services to the country at large, typically under a rubric of helping the most disadvantaged people in society.  It is largely only in they way they raise revenue that they differ.  Rand would simply have preferred that a (far, far) greater fraction of public services be provided through charities.  I suspect, to a fair degree, that the Big Society [official site] push by the Tories in the UK is about a shift in this direction and that, as a corollary, that Mr. Cameron would agree with my characterisation.

Philanthropy UK gives the following figures for the size of the charitable sectors in the UK, USA, Germany and The Netherlands in 2006:

Country Giving (£bn) GDP (£bn) Giving/GDP
UK 14.9 1230 1.1%
USA 145.0 6500 2.2%
Germany 11.3 1533 0.7%
The Netherlands 2.9 340 0.9%

Source: CAF Charity Trends, Giving USA, Then & Spengler (2005 data), Geven in Nederland (2005 data)

Combining this with the total tax revenue as a share of GDP for that same year (2006), we get:

Country Tax Revenue/GDP Giving/GDP Total/GDP
UK 36.5% 1.1% 37.6%
USA 29.9% 2.2% 31.1%
Germany 35.4% 0.7% 36.1%
The Netherlands 39.4% 0.9% 40.3%

Source: OECD for the tax data, Philanthropy UK for the giving data

Which achieves nothing other than to go some small way towards showing that there’s not quite as much variation in “public” spending across countries as we might think.  I’d be interested to see a breakdown of what services are offered by charities across countries (and what share of expenditure they represent).

Second, I occasionally toy with the idea of people being able to allocate some (not all!) of their tax to specific government spending areas.  Think of it being an optional extra page of questions on your tax return.  Sure, money being the fungible thing that it is, the government would be able to shift the remaining funds around and keep spending in the proportions that they wanted to, but it would introduce a great deal more democratic transparency into the process.  I wonder what Ms. Rand (or other modern day libertarians) would make of the idea …

Anyway … let me finish by quoting Will Wilkinson again, in his quoting of Lincoln:

As Abraham Lincoln said so well,

“The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves—in their separate, and individual capacities.”

Citizens reasonably resent a government that milks them to feed programmes that fail Lincoln’s test. The inevitable problem in a democracy is that we disagree about which programmes those are. Some economists are fond of saying that “economics is not a morality play”, but like it or not, our attitudes toward taxation are inevitably laden with moral assumptions. It doesn’t help to ignore or casually dismiss them. It seems to me the quality and utility of our public discourse might improve were we to do a better job of making these assumptions explicit.

That last point — of making the moral assumptions of fiscal proposals explicit — would be great, but it is probably (and sadly) a pipe dream.

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Working hours in the OECD

Via Economix, here’s an OECD study of working hours by citizens of it’s member countries.  Here’s the relevant graph:

Much of it is as you’d expect from cultural stereotypes — Western Europe working the least, Japan and Mexico working the most — but I was a little surprised that Australia isn’t above average.  What’s striking — to me, at least — is that hours worked per day doesn’t seem to be a particularly good predictor of income per capita.  In fact, it’s interesting enough that I pulled the GDP per capita data from the OECD to do up a scatter plot:

There’s not much of a relationship at all (R-squared of 0.1) and to the extent that there is one, it’s negative — working more per day is associated with a lower income per capita.  Without Mexico (on the bottom-right), the R-squared drops to 0.04.

Time spent working per day doesn’t correlate significantly with growth rates in (real) GDP per capita, either (I’ve plotted it for 2006 to capture the state of the world before the financial crisis):

At least here the relationship, if you want to pretend there is one, is positive.

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In today’s episode of Politically Dicey But Important Topics Of Research …

The newspaper article summarising the research: http://www.guardian.co.uk/science/2010/jun/30/disease-rife-countries-low-iqs

People who live in countries where disease is rife may have lower IQs because they have to divert energy away from brain development to fight infections, scientists in the US claim.

The controversial idea might help explain why national IQ scores differ around the world, and are lower in some warmer countries where debilitating parasites such as malaria are widespread, they say.

Researchers behind the theory claim the impact of disease on IQ scores has been under-appreciated, and believe it ranks alongside education and wealth as a major factor that influences cognitive ability.

[…]

The actual research article: http://rspb.royalsocietypublishing.org/content/early/2010/06/29/rspb.2010.0973.full?sid=f65fe5b5-b8d4-4e62-82ee-60c7bd44e3d3

Abstract

In this study, we hypothesize that the worldwide distribution of cognitive ability is determined in part by variation in the intensity of infectious diseases. From an energetics standpoint, a developing human will have difficulty building a brain and fighting off infectious diseases at the same time, as both are very metabolically costly tasks. Using three measures of average national intelligence quotient (IQ), we found that the zero-order correlation between average IQ and parasite stress ranges from r = ?0.76 to r = ?0.82 (p < 0.0001). These correlations are robust worldwide, as well as within five of six world regions. Infectious disease remains the most powerful predictor of average national IQ when temperature, distance from Africa, gross domestic product per capita and several measures of education are controlled for. These findings suggest that the Flynn effect may be caused in part by the decrease in the intensity of infectious diseases as nations develop.

For reference, the Flynn effect:  http://en.wikipedia.org/wiki/Flynn_effect

The Flynn effect describes an increase in the average intelligence quotient (IQ) test scores over generations (IQ gains over time). Similar improvements have been reported for other cognitions such as semantic and episodic memory.[1]  The effect has been observed in most parts of the world at different rates.

The Flynn effect is named for James R. Flynn, who did much to document it and promote awareness of its implications. The term itself was coined by the authors of The Bell Curve.[2]

The effect’s increase has been continuous and approximately linear from the earliest years of testing to the present. There are numerous explanations to the Flynn effect and also some criticism. There is currently a discussion if the Flynn effect has ended in some developed nations since the mid 1990s.

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Thinking about Human Rights (and UNICEF)

Before I begin:  UNICEF has a campaign in the UK at the moment to raise awareness of children being denied their rights around the world.  You can see the homepage for the campaign here.  You can donate here.

Here are some things to keep in mind when thinking about human rights:

  • A right is a particular form of liberty.  It is the freedom to do something.
  • An obligation or mandate is the opposite of a right.  A right involves a conscious choice; thus the phrase “to exercise one’s right.”  If there is no choice available, there is no right.
  • One person having a right often implies denying another right from a second person.  Suppose that you work for me.  If I have the right to fire you, you cannot have the right to a guaranteed job with me.  If you have the right to go on strike, I cannot have the right to fire you for going on strike.
  • Sometimes having a right does not impede the rights of others.  A right to make use of a non-rival good is the classic example.
  • Exercising a right is not necessarily in a person’s best interest.  I have the right to gamble all of my money at a casino, but it probably wouldn’t be wise to do so.
  • Every decision of consequence for everybody, everywhere, is subject to a constraint of some kind.  There are only 24 hours in a day, the resources at your disposal are finite and, eventually, you will die.
  • If a person, operating under a constraint, chooses to not do something, it does not imply that their right has been denied to them.

These last two points, while logical, create problems for many advocacy groups.  Consider the woman who, subject to constraints in her finances and the wages on offer for various jobs she can perform, chooses to become a prostitute.  Consider the subsistence-farming family that, subject to constraints in it’s finances and the wages on offer for alternative work, chooses to keep it’s children away from school and working on the farm.

It is largely for this reason that many people advocate what they call “economic rights”.  Although there are various versions of this (e.g. minimum wages, the welfare state, etc.), you can think of them as a government, on behalf of the entire population, instituting a guaranteed minimum income.

Now, while there are strong moral arguments for such a guarantee (which I fully support and agree with), this is not a right.  This is a mandated transfer of income from high-income citizens to low-income citizens.  For the rich, it is an obligation (the opposite of a right) and for the poor, it does not directly increase the range of choices available to them.  Instead, it indirectly increases that range by relaxing one of their constraints.

I say again:  I fully support providing a minimum income to all people by means of a welfare state; nobody should live in poverty.  But this is not a right.  It is a moral duty.  Calling this an “economic right” is a deliberate obfuscation for marketing purposes.  People pay more attention and money when a person’s “rights” are being denied than when they simply have a moral obligation to help.

I love the work done by UNICEF. I think they are just about the best NGO on the planet. My wife and I donate money to them. They make an express point of telling you how much of the money you give will go to administration costs or to more fundraising.

I just wish they could raise those funds without confusing things by saying that Aklima’s right to education is being denied to her.  I recognise that they have to.  I just wish that they didn’t.

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Note to self: holidaying in Greece will soon be cheap

Megan McArdle directs the world to this piece in the FT.  From the FT article:

The European Commission said on Tuesday it would endorse Athens’ plan to bring back under control the public sector deficit, which last year reached almost 13 per cent of gross domestic product.
…
Under a three-year plan, the Greek government seeks to cut the national budget deficit to less than 3 per cent of GDP by the end of 2012.

and:

In response to criticism that earlier plans had not included sufficient spending cuts, Mr Papandreou also announced an across-the-board freeze in public sector wages which, together with cuts in allowances, would reduce the public sector wage bill by 4 per cent. The government has also pledged to raise the retirement age.

If the Greek government can achieve this without massive, nation-wide strikes, I’ll be terrifically impressed.  Megan’s comments:

Everyone is expressing optimism. But while this sort of belt-tightening is necessary for Greece to stay in the EU, it’s going to come at a huge cost. Greece is already in recession–that’s why its budget problems loom so large–and the fiscal contraction will only make them deeper. Meanwhile, the EU will be setting its interest rates to meet the needs of larger, healthier members (and inflation-hawk bondholders). Tight fiscal and monetary policy means a long, painful period ahead for the Greeks.

This is the dilemma that faced Argentina with its monetary peg to the dollar; ultimately, it led to devaluation and default. We will see if Greece can whether [sic] it better.

I don’t think that this sort of belt-tightening is strictly necessary in the near term.  Germany will, again, fund a bail-out if it really comes down to it because, if nothing else, the loss to Germany of a member of the EU dropping the currency is greater than the loss to Germany of paying for Greece’s debt.

It’s clearly necessary in the long term that Greece get it’s fiscal house in order, but since they’re in such a severe recession, this isn’t really the time to do it (financial market pressure aside).  This is, in essence, the same debate that is gripping America, although there the pressure to address the deficit is coming from a successful political strategy of the opposition rather than, much as that same opposition might like, pressure from the markets.

Ultimately, what the EU needs is individual states to be long-term fiscally stable and to have pan-Europe automatic stabilisers so that areas with low unemployment essentially subsidise those with high unemployment.  Ideally it would avoid straight inter-government transfers and instead take the form of either encouraging businesses to locate themselves in the areas with high unemployment, or encouraging individuals to move to areas of low unemployment.  The latter is difficult in Europe with it’s multitude of languages, but not impossible.

In a perfect world where all regions of the EU currency zone were equally developed, this would simply replace the EU development grants.  But this isn’t a perfectly world …

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On China

Menzie Chinn emphasises that for the purposes of estimating country shares in global GDP, it is necessary to think of them in nominal terms.  On that basis, China is large, but only half the size of the Euro zone and well under half the size of America.  Therefore, he implies, an increase in demand from China won’t really contribute as much to global growth as people might be hoping.

Nevertheless, people do seem to be wondering about China as an engine of global growth in demand.  The reason is simple:  Despite a near catastrophic collapse in world trade, China’s economy is still growing while those of  other export-oriented countries like Japan or Germany are falling precipitously.

Clearly part of the reason for the continued Chinese growth, like in Australia, is the successful use of a fiscal stimulus to boost local demand (the Australian rebound was also helped by the fact that, by not manufacturing much, their decline in investment was offset by a fall in imports and (price) changes in natural resource exports occur with a significant lag).

Brad Setser has explored the Chinese stimulus a little.  He writes:

I initially underestimated the magnitude of China’s stimulus by focusing on the (fairly modest) change in the government’s fiscal balance. It is now clear that the majority of China’s stimulus has been off-budget: the huge increase in lending by state owned banks mattered far more than the change in the budget of the central government. The expected loss on these loans can be considered a form of fiscal stimulus.

Which is a fascinating way to conduct government business.

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Ecuador defaults. Wait, no. Yes. Maybe?

Felix Salmon points out the absurdity of the situation:

A couple of major developments on the Ecuador front: yesterday, finance minister Elsa Viteri came out with the rather stunning decision that the country would make the coupon payments on its 2015 global bonds — despite deciding to default on the 2012s and the 2030s. And today, the Ecuador CDS auction closed at 31.375%, meaning that anybody holding an Ecuador CDS will receive 68.625 cents on the dollar.

Viteri’s decision opens up a major legal battle: there’s no doubt that Ecuador’s legions of creditors will attempt to attach those coupon payments the minute they arrive in the US. And I, for one, can’t imagine for a second that holders of the 2012s and the 2030s will take Ecuador up on any forthcoming offer to buy their bonds back at 30 cents on the dollar when the country is happily paying the 2015s in full.

This is not the first time Ecuador has tried to pay some foreign creditors without paying others who are pari passu. Ten years ago it tried a very similar trick with its Brady bonds — with disastrous results. But I don’t think that Ecuador has any grand strategy here; instead, the most likely hypothesis is that a well-connected financier has greased enough palms to make sure that he gets paid out on both his 2015s and his credit default swaps.

What all this means in practice is that Ecuador is now behaving so erratically that there’s no point even attempting to deal or negotiate with the present administration in anything like good faith. Instead, the holders of the 2015s will thank their lucky stars and hope that they actually receive their money; the professional vultures will be spending a lot of time in federal court in lower Manhattan; and most of the rest of the holders of the 2012s and the 2030s will simply wait for the next Ecuadorean president to come along. Because this one just isn’t acting logically.

*sigh*

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When can social change occur?

Somebody much smarter than I am was kind enough to read my little post on Endogenous Growth Theory.  At lunch today, they drew attention to this item that I mentioned:

I’m not aware of anything that tries to model the emergence of ground-breaking discoveries that change the way that the economy works (flight, computers) rather than simply new types of product (iPhone) or improved versions of existing products (iPhone 3G). In essence, it seems important to me that a model of growth include the concept of infrastructure.

The question was raised:

Could it be that times of significant social change have a tendency to coincide with with the introduction (i.e. either the invention or the adoption) of new forms of infrastructure? [*]  A new type of mobile phone hardly changes the world, but the wide-spread adoption of mobile telephony in a country certainly might change the social dynamic in that country.

It’s something to ponder …

[*] My intelligent friend is not an economist and would probably prefer to think of this as a groundbreaking discovery rather than just the development of a new type of infrastructure.

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New Scientist is loopy

New Scientist has a feature this week blaming the unsustainable destruction of the environment on an obsession with economic growth and calling for a move to a growth-free world.  The answers to the questions raised by the collection of articles (all essentially repeating each other) are straightforward and widely recognised:

  • As the supply of something dwindles or the demand for it rises, the price of that thing will rise.  If we run low on some particular natural resource or our demand for it at the current price proves greater than the supply, the price will rise.  That will cause demand to fall and will spur innovation in searching for an alternative.  Trains in Britain first ran on coal-fired steam engines.  Eventually the price of coal rose too high and they switched over to diesel.  The price of oil was going up too, so after that they moved to electric engines.  The transitions aren’t perfectly smooth, I’ll grant you – there are discrete jumps that can make it a bumpy ride – but it does happen.
  • Externalities exist, both good and bad.  Actions that come with positive externalities ought to be subsidised.  Actions that come with negative externalities ought to be penalised.  We’re producing too much carbon dioxide?  Make the polluters pay.  Whether it should be through taxes or a trading system is a matter of debate, but bring it in.  We’re over-fishing in the North Atlantic?  Impose a tax directly on the fishermen for every fish they catch.  When the cost of doing a bad thing rises, people do it less and innovate to find an alternative.
  • Yes, extreme inequality is a Bad Thing ™.  It’s true that for some time we’ve had worsening inequality because of low growth among the poor and high growth among the rich, but that doesn’t mean that growth is bad per se, only that the composition of growth is around the wrong way.  It is far better to have low growth for the rich and high growth for the poor (so they catch up) than to have no growth at all and rely entirely on redistribution.  Redistribution should happen, yes, but primarily for the purposes of enabling the poor to grow faster.  Have the rich pay for the health care and education of the poor.

You don’t think this all this is possible?  Of course it’s possible.  Here is an article from Der Spiegel from April 2008 talking about solar power and the Sahara desert.  Here is a map from that same article:

The caption reads:  “The left square, labelled “world,” is around the size of Austria. If that area were covered in solar thermal power plants, it could produce enough electricity to meet world demand. The area in the center would be required to meet European demand. The one on the right corresponds to Germany’s energy demand.”

If the cost of coal- and gas-fired electricity production were high enough, this would happen so fast it would make an historian’s head spin.