Friday, March 31, 2006

Trade Guru on Immigration

Here is J. Bhagwati's, a Columbia University economist, oped on immigration published in WSJ.

What is Missing in the US's Immigration Debate

The debate on a controversial immigration bill is brewing on the Capitol Hill, read the report here in the Washington Post.

The story said, "A growing body of economic research contends that the recent surge of foreign workers has depressed wages for low-skilled workers, especially for high school dropouts, and has even begun displacing native-born workers. That benefits employers, higher-income consumers and the economy at large, but it may exacerbate the problems of the working class."

The whole issue is framed as a distributional one, employers gain (because of low wages as the supply of unskilled labor surges) at the expense of low-skilled workers.

But let's look at it from another perspective, let's think about the new immigrants would enlarge the size of the US market, and an enlarged market means there are more opportunities for further specialization and division of labor and hence more opportunities for beneficial exchanges are opened up as result.

Jim Buchanan had a nice little book, though not directly addressing the issue of immigration, that touched on the topic of how the enlargement of the market extends the opportunities of specialization and how this will bring fruits to everybody involved.

Thursday, March 30, 2006

Game Theory at B-Schools

WSJ reported that game theory is becoming more and more popular in MBA programs, especially with economists getting Nobels for their contribution to the field. Read the story here.

Indeed, there are several excellent game theory texts that have B-school students as their target customers. The most popular one is doubtless Thinking Strategically written by A. Dixit and Barry Nalebuff. Other important ones include Co-Opetition by Adam Brandenburger and Barry Nalebuff and Games, Strategies and Managers by John McMillan.

George Mason U. in Washington Post and WSJ

After GMU's basket ball team got a spot in NCAA's final 4, GMU suddenly becomes talk of the town.

Read the Washington Post story here and the WSJ story here and here.

Tuesday, March 28, 2006

When Google Goes to Washington

Northwestern University law and economics scholar Fred McChesney wrote a book on how the government, through mere regulatory threats, can solicit rents from businesses back in 1997.

According to professor McChesney, that theory (called rent-extraction theory) explains why we observe less regulations than we would have expected because a credible threat of regulation would be enough to bring about rents without the regulatory threats being actually implemented.

In NYT today, there is a story about how Google has to follow the footpaths of other low-tech firms in building up a strong presence in K street. The story tells another tale of how rent-extraction works in practice. Read the whole thing here.

Monday, March 27, 2006

Price Discrimination in Competitive Markets

"Standard economics has long held that firms can price discriminate only when they have monopoly power. Antitrust authorities and other regulators are thus tempted to use the existence of price discrimination as one indicator that a firm should possibly be subject to government investigation. In this monograph Professor Baumol shows that price discrimination not only exists in competitive markets but sometimes is a crucial feature of them. Baumol concludes by urging regulators to tread carefully when applying theory to policy. "

This is from a monograph written by Bill Baumol, a retired professor at NYU.

Price discrimination in a competitive markets, is that really a "new" discovery?

Professor Steven N.S. Cheung noted as early as 1983 in his What the Tangerine Seller Said, a book of his newspaper columns in Chinese, that his own experience from selling tangerine during the Chinese New Year was that price discrimination was widespread even when your neighboring stores were selling exactly the same things as yours.

Is Democracy a Western Thing ?

This is a question Amartya Sen posed in his WSJ oped, read it here. Sen answered negative to the question.

I am basically in agreement with his argument until he wrote:

"When it is asked whether Western countries can "impose" democracy on the non-Western world, even the language reflects a confusion centering on the idea of "imposition," since it implies a proprietary belief that democracy "belongs" to the West, taking it to be a quintessentially "Western" idea which has originated and flourished exclusively in the West. This is a thoroughly misleading way of understanding the history and the contemporary prospects of democracy."

I beg to differ. To me, "imposition" means something different from what Sen suggested above when applied in the debate on exporting democracy to other non-democratic country.

"Imposing democacy" means introducing democracy to a non-democracy countries without first taking local conditions into account. It is a criticism of the means through which democracy is introduced, not the end it self ie whether democracy should or should not be introduced in the first place.

That is, I suppose, the main lesson that one can draw from Bill Easterly's "The White Man's Burden" as well.

Wednesday, March 22, 2006

Using Legislation to Sabotage Competitors

NYT's David Leonhardt has written a telling tale on how entrenched airlines companies used the law to stifle competition, read it here.

The Costs of Saying No to Capitalism

French youth took to the street to protest free market policies...Washington Post's Steve Pearlstein does not find it so difficult to understand what caused these kids to take to the street to express themselves: The French see the free market as a villain.

"A telling poll released in January by the Program on International Policy Attitudes at the University of Maryland found that only 36 percent of French respondents felt that "the free enterprise system and free market economy" is the best system. That's the lowest response from any of the 22 countries polled and compares with 59 percent in Italy, 65 percent in Germany, 66 percent in Britain and 71 percent in the United States."

Pearlstein also pointed out, correctly I think, the government is to be blamed in causing such riots as well.

"After all, the supposedly center-right government that pushed through the new youth-employment contract is the same government that adamantly refused to give up subsidies for farmers, stepped in to prevent foreign takeovers of French companies and, just last week, demanded that Apple iPods accept music downloads from iTunes competitors (read: French competitors). But having declared, in effect, that markets cannot be trusted to generate socially and politically acceptable outcomes, the same government is now shocked to find that it doesn't have much credibility when it asks workers to trust markets when it comes to the terms of their employment."

But this is the sad part of the story:

"when you ask French university students who is the Bill Gates of France, they look at you blankly. It's not simply that they can't name one. The bigger problem is that they can't imagine why it matters, or why that has anything to do with why they can't find a good job."

Tuesday, March 21, 2006

Incentive Pay for Teachers

"A new pay-for-performance program for Florida's teachers will tie raises and bonuses directly to pupils' standardized-test scores beginning next year, marking the first time a state has so closely linked the wages of individual school personnel to their students' exam results.

The effort, now being adopted by local districts, is viewed as a landmark in the movement to restructure American schools by having them face the same kind of competitive pressures placed on private enterprise, and advocates say it could serve as a national model to replace traditional teacher pay plans that award raises based largely on academic degrees and years of experience.

Gov. Jeb Bush (R) has characterized the new policy, which bases a teacher's pay on improvements in test scores, as a matter of common sense, asking, "What's wrong about paying good teachers more for doing a better job?""

Read the whole thing here.

The story also contained responses from "educators" who said that test scores should not be the sole criterion to judge teachers' performance.

The implicit economics in this claim is this: teachers have to perform many different tasks and their efforts in most cases are difficult to evaluate. So by linking incentives to test scores alone, a relatively good indicator of teachers' efforts and their effectiveness, this claim implies that less efforts will be allocated to those other tasks to the detriment of students.

Will this happen? If efforts and their effectiveness are so difficult to measure in those other tasks (inspiring students say), how can we be so sure that teachers will not slack on those other tasks in the first place before the introduction of the pay for performance scheme? Now that with the incentive scheme, at least we will be quite damn sure that more efforts will be put in those tasks that will improve students' test scores.

Go Mason!

It turns out that George Mason has many other nice things to offer other than economics, law and info tech...

LA Times headline wrote: George Mason Brings Down the Champ. Read it here.

Another story also in the Times has this nice description of George Mason:

George Mason is a relatively new university, founded in 1972 as part of the University of Virginia system. Its original goal was to provide education in subjects of importance to the growing community of government workers in Northern Virginia. It has well-regarded schools of public policy and informational technology. It was mainly a commuter school until about 15 years ago.

But now George Mason is the largest university in the state. It has 29,000 students. It has two Nobel Prize winners in its economics department. It has a groundbreaking department of microbiology.

Constitutional Economics

Victor Vanberg has a new paper on Constitutional Economics, read it here. Vanberg used to teach at George Mason University while I was there.

Monday, March 20, 2006

More on the "White Man's Burden"

In my previous post, I have provided a link to a review of the book "White Man's Burden" by Amartya Sen, here is the response to it by the author Bill Easterly.

Some other book reviews have also been posted by Bill on his website, here is one that appeared on NYT, and another one that appeared on WSJ.

Gordon Tullock on Foreign Policy

Yes, and it seems he is trying to write a book on the topic as well, read Chapter 1 here.

Funny Quote of the Day

Under Communism, the Poles are fond of saying, only the future is certain:

The Past is always changing.

More on the Costs of the Iraq War

Gary Becker and Dick Posner weighed in on the costs of the war on Iraq. Read it here.

It seems the costs on the war on Iraq has become a hot topic. In the lastest issue of the Economist's Voice, there are two pieces on the topic, one by Scott Wallsten with the American Enterprise Institute and one by Joe Stiglitz.

Thursday, March 16, 2006

Thankyou Capitalism

My son, at 4, has almost fully recovered from the surgery he had three days ago.

On top of my wife, who brought him to the hospital that day, I must thank capitalism.

The reason for that is left for the reader as an exercise.

Wednesday, March 15, 2006

Demand Curve for Terrorism Slopes Downward

Washington Post columnist Anne Applebaum has a very good piece on the folly of the US to creat a list of "critical infrastructure" where the items on the list will be offlimits to foriegn investors.

Indeed, though it may appear to be counter-intuitive, the US really ought to encourage foreigners -- especially those who pose potential threats to US security -- to invest in US assets. If that means giving them tax breaks as inducements, such insurance premium would be dirt cheap in comparison with the trillions of dollars being spent on homeland security.


Things contained in the list are critical assets right? They are designated as critical supposedly because they will be the first targets enemies will pick when they plan to attack the US right?

If that is the case, you should prefer those assets to be owned by the very opponents of the US who are contemplating to attack the US in general and those assets in the list in particular.

Doing so raises the price of attacking those very assets and with demand curve for attack slopes downward, need I say more?

Tuesday, March 14, 2006

Voter Ignorance

In a WSJ article on minimum wage, it cited a poll which finds that "more than 80% of Americans surveyed said they were in favor of "Congress passing legislation that would raise the minimum wage," with only 14% saying they would disagree."

""This issue is so popular among the entire public that Republican voters don't even realize they're supposed to vote against these initiatives," says Kristina Wilfore, executive director of the Ballot Initiative Strategy Center, a left-leaning umbrella group backed by labor unions and financier George Soros."

Read more here.

For an insightful analysis of the consequences of voter ignorance on the operation of democracy, read the paper here and here.

Freakonomics in the Classroom!

It turns that a lot of colleges have adopted Freakonomics as a teaching tool. Now a study guide to help students using the book to navigate through the text is out, yes, there is a study guide for Freakonomics. You can download it here.

Monday, March 13, 2006

Just When You Think India is Ahead of China in R&D

According to a WSJ story, last year China's R&D spending accounted for 1.3 % of GDP. India, the fiscal year ended in March 2005, R&D spending amounted to 0.77 % of GDP.

Read the story here.

The Economcis of War

In the latest NBER working paper, Bob Topel, Kevin Murphy and Steve Davis (all of them with the University of Chicago) find that:

"According to our analysis, pre-invasion views about the likely course of the Iraq intervention imply present value costs for the United States in the range of $100 to $870 billion.

Our estimated present value cost for the containment policy is nearly $300 billion and ranges upward to $700 billion when we account for several risks stressed by national security analysts.

Our analysis also indicates that war and forcible regime change will yield large improvements in the economic well-being of most Iraqis relative to their prospects under the containment policy, and that the Iraqi death toll would likely be greater under containment."

However, in an earlier paper, Nobel Prize winner Joe Stiglitz and his coauthor find it costly/uneconomical to wage the war in Iraq.

Who is right?

The Road to Serfdom, in Cartoon !

Yes, it is the Road to Serfdom written by F. Hayek. Watch the cartoon here.
Hat tip to Marginal Revolution for the pointer!

A Personal Note

Dear Readers of this Blog:

As my son will undergo an eye surgery tomorrow (14 March), I may not be able to update my blog as frequent as I would like. Sorry about that and many thanks for your support and understanding.

Funny Quote of the Day

I got my copy of Bill Easterly's new book last Saturday and have started reading it, so far so good. When I was reading it earlier today, a really funny line caught my eye.

The lack of accountability at the foreign aid agenices, according to Easterly, is just like "the bumper sticker I once saw on an eighteen wheeler: DON'T LIKE MY DRIVING? CALL 1-800-SCREW-YOU."

I have never imagined that economics books can be that funny!

Thursday, March 09, 2006

Experimental Economics

You know experimental economics is gainning wider acceptable among mainstream economists when there are more and more undergraduate/MBA level textbooks coming on to the market.

Here is the latest forthcoming text by UVA's expert in experimental economics Charlie Holt (I think he is Jim Buchanan's student).

The new book will be published by Addison Wesley later this year.

Wednesday, March 08, 2006

More Open Government in China, One Step at A Time

Today's WSJ again has a nice piece on how China's legislature, hitherto viewed as nothing but a rubber stamp has finally changed and become more assertative.

"China's traditionally rubber-stamp legislature is taking on a new role: a target for interest groups to lobby.

With nearly 3,000 delegates gathered in the capital until next week for the annual meeting of the National People's Congress, some representatives of different interest groups have also flocked to Beijing. They have been seeking to win the ears of delegates on the sidelines of the 10-day meeting on issues from tax policy to antidiscrimination measures for hepatitis B carriers...

Delegates -- who meet once a year to rubber stamp the premier's work report, the state budget and any bills that have been teed up -- are also becoming more outspoken in representing their constituencies."

Read the whole thing here. The slow but gradual openning of China's government is one very important reason why I think all those who predict China's pending collapse is wrong, and dead wrong on that.

How Markets Engender China's Freedom of Expression

In today's edition of WSJ, Harvard scholar Merle Goldman has a nice piece on how China's market development engenders freedom of expression there.

"Although China remains an authoritarian Communist party-state, its totalitarian controls have been loosened due to China's opening to the outside world and moves toward the market. As most newspapers lost their government subsidies and had to support themselves, they became more daring and more responsive to their constituencies' concerns in order to attract readers.

In addition, China's exposure to the outside world through business, travel and the Internet has allowed a limited degree of freedom in the personal lives of individuals. Such changes have made a small number of people less fearful and more willing to speak their mind. This new stage of unprecedented boldness may in time help introduce political institutions that can deal more effectively with the urgent problems that China faces today."

Read the whole thing here.

Tuesday, March 07, 2006

Why the US Should Welcome Investors from Middle East

Paul Blustein of the Washington Post wrote:

"Already, the list of U.S. businesses owned by Arab investors -- not just from Dubai -- includes some well-known names. Among them are Caribou Coffee Co., the fast-growing rival to Starbucks Corp.; Church's Chicken, a fast-food concern; Loehmann's, a specialty retailer; TLC Health Care Services Inc., a provider of home nursing and hospice care; and even several financial publications, including the American Banker.

Such "direct" investment in hard assets -- companies, factories and real estate -- is generally preferable for the U.S. economy, in the view of most economists, to foreign investment in bonds, stocks and other financial assets. One advantage of direct investments is that they cannot be dumped in a panic the way that, say, a Treasury bond can...

The main drawback of a direct investment is that it involves foreign control, which can raise national security concerns..."

Read the story here.

The way I see it, far from creating security concerns, direct foreign investment can actually help lower the risk of a foreign attack, whether of the conventional or the terrorist kind. How?

Imagine you were a terrorist, which target you would hit first, a place where you had a lot at stake through investment or a place where you have no personal interests at stake.

An untended consequence of the US welcoming FDI from hostile groups, countries, individuals is that it would raise the likelihood of an attack on other US allies say the Brits.

Monday, March 06, 2006

What Readers Really Want?

David Friedman has written an extremely perceptive post on the media.

"I often use my car's satellite radio to listen to political talk shows. The experience is not encouraging. Most of the content, left and right, amounts to "our side is wise and virtuous, hooray, their side is stupid and evil, boo"...Being nice is less dramatic than being nasty."

Right on. I was for awhile (one year and eight months to be exact) an editorial writer for one of the best selling papers here in HK. One day, my then boss met me in the office and told me what I wrote was boring. I then asked him how I could make my column interesting.

Just yell at your opponents and let them know they were stupid was his reply. I then asked what about logic? To hell with logic responded my then boss. "Who cares about logic? We are not in the business of selling knowledge anyway," said my then boss. All I needed to do, I was told, was to appeal to my readers' emotions.

Weeks later, I quit. David Frideman nicely captures how I feel about the whole thing. As an editorial writer who believes in the free market, I tried to treat people I disagreed "with honestly and sympathetically, conceding the parts of their argument that are correct while disputing the parts that are not." Unfortunately, that style of writing was not what my boss expected from me apparently because such an approach was "less effective...than telling them what idiots they are—especially if most of your listeners are already on your side."

Question: Say if someone already is a believer in free market, why would he or she spend time or money on radio programs, talkshows, and newspaper which provide nothing to him/her other than reaffirming his/her prior beliefs? Or is reaffirmation of his/her prior beliefs all he/she wants in the first place from such media outlets?

Rejuvenator of Urban Economics

Harvard economics professor Ed. Glaeser is featured in this NYT piece.

The best part of the story is when Glaeser recounted on how he got interested in learning economics.

When Glaeser was 10, his mother brought him along to her MBA classes. "Some adults remember fondly the first time they went to a major-league baseball game. Glaeser recalls a revelatory experience as a youngster when his mother sat him down and explained marginal cost pricing."

Hat-tip to Marginal Revolution for the pointer.

Sunday, March 05, 2006

Sen on Easterly

Much has been said about Bill Easterly's new book, "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good." The book has not come out yet, but here is a book review (only mildly positive) by Amartya Sen in the latest issue of Foreign Affairs.