Costs of Unanimity

WTO's rules dictate that trade deals have to be approved by all its members. The upside of this decision rule is that nobody gets screwed of course. Unanimity does have its costs however. It generates the possibility of hold-ups.

France is exactly doing this according to this Washington Post story.

Coase vs Demsetz on Externality

"Yet, Coasean analysis of externalities has been the subject of much
confusion, even disagreement. Demsetz (2003) in particular has
pointed to aspects of the Coase approach that, as a matter of both
economics and of government policy, he finds problematic. As a matter
of economics, Demsetz says, Coase’s focus on transaction costs is
not helpful in resolving questions concerning externalities."

This is from Fred McChesney in the latest issue of the Cato Journal. Read more here.

Bittersweet Tune

Every breath you take, Every change of rate,

Jobs you don't create, While we still stagflate,

I'll be watching you.

Every single day, Bernanke takes my pay,

When growth goes away, inflation will stay,

And I'll be watching you.

And:

Oh can't you see, the Fed's where I should be,

How my poor heart aches, at each mistake you make.

Recall the original song on which the lines above are based? The Police's "Every Breath You Take." Read more here.

Cultural Difference

In today's edition of WSJ, there is a fascinating story about how Americans are climbing up the corporate ladder within the big three Japanese carmarkers. One line caught my eye.

"You get on an airplane and the American will get right to work...We Japanese will watch the movie and drink."

Read the piece here.

Conference in Honor of Jack Hirshleifer

A group of renowned economists gathered in March at UCLA to pay their last tributes to UCLA economics professor Jack Hirshleifer. Here is the official website and here is a paper by Harold Demsetz on the development of economics. Professor Hirshleifer passed away in July last year.

Eureka! Or Professor Steven Cheung Got it Right, Again!

In a latest NBER working paper, Yale professor Peter Schott found that:

"China’s export bundle increasingly overlaps with that of more developed countries, rendering it more “sophisticated” than countries with similar relative endowments."

Read the paper here.

Indeed, Professor Steven N.S.Cheung has made similar remarks years ago in his Chinese writings. Hat tip to the Professor Cheung once again for his keen observations on China's economy.

Free Markets in Japan, Finally!

In the Sunday edition of the NYT, there is a story on growing income gap in Japan amid the economy's continued revival after a decade-long slump. Of course, in the eyes of the NYT, income inequality is a big minus.

"Today, in a country whose view of itself was once captured in the slogan, "100 million, all-middle class society," catchphrases harshly sort people into "winners" and "losers," and describe Japan as a "society of widening disparities.""

What brings about income inequality in the first place?

Shouldn't people who are more productive (in the value-creating sense) get higher rewards than those who are less productive? Unless every one is equally productive, the "100 million, all-middle class society" implies that Japan's labor market is not doing its job.

In other words, growing income inequality in Japan means that markets are finally allowed to work properly in Japan. And what's wrong with that!

One Loser SOE + Another Loser SOE = World Class Enterprise

A plan to merge two government-owned entities, MTR (an underground rail corporation) and KCRC (a railway company), has finally got the green light to go ahead. Read the government press release here.

Funny thing is, commenting on the merger, our head of the government said that "The merger will create a world class Hong Kong railway company and consolidate Hong Kong's status as Asia's World City." Read all of his comments here.

Without any plan for full privatization down the road, how the merged entity (which continued to be a state-owned enterprise albeit a giant one) could be transformed into a "world class concern" is a mystery that even Sherlock Holmes would find it tough to figure out.

And if HK really needs to depend on a giant SOE to consolidate HK's status as Asia's World City, we better call Beijing up and tell them: Beijing, Beijing, we have a serious problem!

Problem down the road as I see it. To placate populists in the legislature, the government will try VERY HARD to lower the prices for both the MTR and KCRC. To avoid losses, the government will further distort the local transportation market through additional restrictions on other modes of transport to compete with the new entity.

If you cannot charge a market price to recoup your fixed costs, you have to increase the number of customers by forcing those people who would not ride on the rail if given another option to become new customers. This is so because the railway business has relatively high fixed costs compared with the marginal costs of serving another passenger.

Thomas Friedman: Amateur or Guru?

What makes NYT columnist Thomas Friedman's The World is Flat such a big hit remains a mystery to me....I mean if you want to know about the impacts of globalization, why don't you get a book written by real experts in the field like In Defence of Globalization by J. Bagwatti or Free Trade under Fire by Doug Irwin (who is a student of Bhagwati).

Bagwatti's and Irwin's books are targeted at the general audience so they are written in an accessible language that is free of jargons. If you can get the stuff from the horse's mouth, then why bother with a merchant of second hand ideas like Friedman?

Am I missing something? Does Friedman really has something insightful and important to say on this topic?

Nop, nop, nop...

Read this insightful and negative review of Friedman's book by UCLA trade economist Ed Leamer here.

Quote of the Day

"Warning people about purported free lunches is one reason God put economists on earth."

That's a line from Greg Mankiw's latest post on health care, read it here.

Joe VS Hillary Clinton

Hillary Clinton(HC) : "I think a return to fiscal discipline, living within our means, is essential to our long-term health."

Joe, an Econ 101 student who doesn't use Joe Stiglitz's undergraudate text: That is easy, just ask the government to spend less, waste less and do less.

HC: "It is also critical to whether or not we control our own destiny as a nation. Red-ink fiscal policies will undermine America's competitiveness. We have to ask ourselves whether our taxing and spending policies are in line with our economic goals."

Joe: If she is referring to US as a nation when she mentioned "our economic goals", that is nonsense. For a country, unlike a person, cannot have its own goals. And if she is referring to each and every American citizens, then what she said is nonsense as well. For there is no set of economic policies that would make everybody happy.

HC: "America did not build the greatest economy in the world because we had rich people... We built the greatest economy in the world because we built the American middle class."

JOE: First of all, the market is not something that you build nor create. It emerges. Once you think otherwise, the government will then think that it has the ability to tinker with the operation of the market. Well, if you could create a market, it is only logical for you to have the ability to steer it onto some other path as well.

Second, the operation of the market does not favor any particular class. Yes, not even the middle class. Historically, markets, if unfettered, make the emergence of the middle class possible. But that is different from saying that the market has a bias towards certain class.

If you want to read more on Hillary's thoughts on economic policies, read the Washington Post story here.

Civil Society In China

In a story in NYT, it reported on the increasing effectiveness of NGOs in China in fostering the establishment of a civil society and in changing the direction of government policy.

"Officially, there are about 280,000 of them registered in China, an extraordinary number considering there were virtually none as recently as the early 1990's. Some experts estimate there are now two million to eight million such groups, many of them very small and most of them simply ignoring government registration requirements."

Read the whole thing here.

Who will be the Next Vice-chairman of the Fed?

This story in WSJ reported on who are the likely candidates.

James Buchanan Lecture Series

Deirdre McCloskey delivered the inaugural Jim Buchanan Lecture last week. The title of her paper is: The Hobbes Problem: From Machiavelli to Buchanan. HT to Marginal Revolution for the pointer.

Should Government Intervene when Externalities Occur?

A big problem with the argument that goverment action is justified whenver externalities occur in the market is the implicit assumption of the absence of externalities resulting from that very same government action.

That is the bottom line of this very intelligent post on the topic by Jeff Miron, you have got to read it.

Economic Logic: Casualty of Political Calculation

Here is the latest from WSJ, "French President Jacques Chirac, bowing to intense pressure from students and unions, announced plans Monday to replace a contested employment law that triggered massive protests and strikes across France."

Read the whole story here.

Here is what A. De Jasay has to say about Chirac and the recent riots:

"Many observers, including President Chirac, are convinced that the French are ferocious by temperament and must be treated with kid gloves, for if their violence is met by violence, mayhem and civil war will break out and blood will flow in the gutters.

France has one of the world's largest, and very efficient, riot police, the CRS that, however, is hardly ever used in politically sensitive conflicts for fear that worse might ensue. In his 11 years as president, Mr. Chirac has never faced down street crowds and has been especially quick to capitulate when all too necessary school and university reforms were met, as they always were, with protests by students and their teachers."

Read it here.

We Don't Have Clients; We Have Suspects!

"The US government during the Clinton Administration tried to make various agencies more client friendly. According to anecdote by John Nellis, the response of Customs officials to this initiative was "We don't have clients; we have suspects.""

That is from Bill Easterly's White Man's Burden, and John Nellis is a non-resident fellow at Center for Global Development.

Lords of Poverty

In response to a piece published in Cato Unbound by Bill Easterly, UCLA economist Deepak Lal wrote in response:

"The unpalatable truth for the many well meaning people who are moved by world poverty and want to do something is that, over the years, alleviating world poverty has become a large international business from which a large number of middle class professionals derive a good living.

They have been aptly described by a former East African correspondent of the Economist as the "Lords of Poverty."[2] Easterly's suggestions for making aid effective will merely provide them a new play! The truth is that aid is not only ineffective; it is actually counterproductive. It will be a cruel joke on the Amaretch's of the world if it is now believed that some bureaucratic fix of the aid machinery will get them to school."

Read the whole thing here.


BTW, Lal has a new book that will come out this year on Classical Liberalism. The cover of the book is shown here.

Playing For Real

In 1991, Ken Binmore published his excellent game theory text Fun and Games. Since then, readers like me have been waiting anxiously for him to bring this book up-to-date with recent advances in game theory.

Finally, Oxford U Press will publish the revised edition of the text with a new title Playing for Real. Can't wait to see that.

For those who are unaware of it, Ken has a book out last year entitled Natural Justice in which he uses game theory to analyse moral behavior.

Let Them Eat Cake!

In a negative review of Bill Easterly's book The White Man's Burden, World Bank economist Branko Milanovic wrote, "It is somewhat ironic, I think, that Bill Easterly, who has spent a large part of his life working on issues of growth, poverty and inequality in poor countries and whose knowledge and intellectual capacity is second to none, has written a book that, despite his protestation to the contrary, will be used to set back the agenda of poverty alleviation and provides an argument for those who have long argued that the best policy is to do nothing and ignore the poor world. Let them eat cake!"

Read it here and a short summary of Bill's book here.

The gentleman in the picture is Bill.

Greg Mankiw on the Austrian School

A student of Greg Mankiw asked him if he has read Human Action by Ludwig Von Mises. Here is his response:

"The truthful, if slightly embarrassing, answer is that I have not read the book. Explaining why may be somewhat edifying, however, so let me reflect on the reasons (not excuses) for my ignorance.First, most economists at research universities focus their attention on recent work. Things written more than twenty or thirty years ago are usually assumed to be irrelevant, out-dated, or incorporated into more recent work. We rarely focus on something like the Mises book (written in 1949) for the same reason that physicists don't read Newton in the original.

Second, at the mainstream schools where I have spent my education and career (Princeton, MIT, and Harvard), the economists of the Austrian school like Mises are often viewed as fringe figures. Rightly or wrongly, they rarely show up on reading lists. I am confident that while I was a student at Princeton and MIT, I was assigned not a single article by an economist in the Austrian tradition.That judgment might well be unfair. Another prominent Austrian economist is Frederic Hayek, who won the Nobel prize in economics. Cognizant of my ignorance of his work, a few years ago I read (and assigned in a Harvard freshman seminar) his classic book The Road to Serfdom. I thought it was terrific." Read the rest of his post here.

In case you are curious, read Human Action for free here.

Greg Mankiw on Outsourcing

Here is Greg Mankiw on Outsourcing and here is his blog which he uses to communicate with his students. Posted above is a picture of Greg, a nice one I would say.

Yes, it's George Mason again but not about Basketball

A former student at GMU recalled his fond memories of his education at George Mason in this story in WSJ.

Above is a picture of Enterprise Hall, where the Econ department is located and where I used to have an office with a view of the George's Hall, the site where Center for the Study of Public Choice is located...I sure have good memories of my education as well...GO MASON!