Social outcomes are substantially determined at birth

Tuesday, March 2nd, 2021

Gregory Clark’s latest (pre-print) paper, For Whom the Bell Curve Tolls, argues that a lineage of 400,000 English individuals 1750-2020 shows genetics determines most social outcomes:

It is generally assumed that the elements that define social status — occupational status, educational attainment, wealth, and even health — are transmitted across generations in important ways by the family environment. Above we show that the patterns of correlation of social status attributes in an extended lineage of 402,000 people in England are mainly those that would be predicted by simple additive genetic inheritance of social status in the presence of highly assortative mating around status genetics. Parent-child correlations for a trait equal those of siblings, and the patterns of correlation of relatives of different degrees of genetic affinity is mainly consistent with that predicted by additive genetics. Further family size and birth order, elements that would significantly affect the family environment for children, have modest effects on adult outcomes. The underlying persistence of traits is such that people who have likely never interacted socially, such as second to fifth cousins, remain surprisingly strongly correlated in terms of occupational status and wealth. The patterns observed imply that marital sorting must be strong in terms of the underlying genetics.

If this interpretation is correct then aspirations that by appropriate social design, rates of social mobility can be substantially increased will prove futile. We have to be resigned to living in a world where social outcomes are substantially determined at birth. Personally I would argue that this should push us towards compressing differences in income and wealth that are the product of such inherited characteristics. The Nordic model of the good society looks a lot more attractive than the Texan one.

Venezuela has the world’s largest proven oil reserves and yet the country has run out of gasoline

Thursday, February 18th, 2021

Venezuela has the world’s largest proven oil reserves and yet the country has run out of gasoline:

The socialist government has lost the capacity to extract oil from the ground or refine it into a usable form. The industry’s gradual deterioration was 18 years in the making, tracing back to then-President Hugo Chávez’s 2003 decision to fire the oil industry’s most experienced engineers in an act of petty political retribution.

The near-total collapse in the nation’s oil output in the ensuing years is a stark reminder that the most valuable commodity isn’t a natural resource, but the human expertise to put it to productive use.

[...]

“Drivers who operate gas-powered busses prefer to keep them parked so that they can suck out the gas and later resell it,” says Andrés, a public bus operator in Caracas, who asked that we only use his first name.

“[My] bus runs on diesel. It uses 16 [or] 17 gallons daily. Nowadays, we have to wait in a long line to fill up,” he said. “The gas stations even have national guards who ask for bribes before they’ll fill up the tank because the 40 liters that the government gives us isn’t enough.”

Andrés is allowed special access to fill up his tank because he provides an essential city service. But earning the equivalent of just $200 a month, he struggles to make ends meet. So he keeps his bus parked and extracts gas from the tank to resell on the black market, earning about $8 per gallon. To put that into perspective, the average Venezuelan subsists on less than $10 per day.

The little gas that is still available comes via periodic shipments from Iran. But the Venezuelan government doesn’t officially charge at most gas stations. It uses a quota system, so filling a tank can mean waiting in line for days.

David is a mechanic living in Caracas. These days he’s making a living by waiting in line to fill up his tank and then extracting the gas to resell on the black market.

“My business isn’t selling gas,” David says. “It is meeting the needs of my customers.”

“A lot of the clients from my repair shop are elderly people — people who can’t be standing in line for eight hours, or two days, or three days, or a week. I am the person who is sacrificing my time. Clearly, I have to charge for my time. We all have to make a living.”

People may have extra cash to burn on big trips, fancy cocktails and Broadway shows

Friday, February 12th, 2021

Executives in industries devastated by COVID-19 clearly want investors to believe that they’re on the verge of a roaring comeback:

And some evidence suggests they may be right. According to data from the U.S. Bureau of Economic Analysis, the national savings rate has jumped during the pandemic, so people may have extra cash to burn on big trips, fancy cocktails and Broadway shows. And, man, do people miss going out.

According to a recent survey by the Harris Poll, 71% of Americans say they miss socializing in restaurants and bars, 61% say they miss shopping in stores and 52% say they miss movie theaters. Growing percentages of people say they’re planning on splurging on vacations, clothes, cars and sporting events when things return to normal. Fifty-nine percent say they would take a COVID-19 vaccine in order to fly again. After news broke that COVID-19 vaccines work, stocks for airlines, cruise lines and other industries that rely on being face-to-face surged.

Places that have gotten the virus under control have already seen some impressive rebounds in travel and leisure. For example, in China, domestic airline travel came roaring back after the country ended its shutdowns. When Shanghai Disneyland reopened, tickets sold out in minutes.

Always make it clear that you are acting out of the goodness of your own heart, not under pressure from the opposition

Wednesday, February 10th, 2021

Commenter Dwarkesh proposes this hypothetical to Bryan Caplin:

If I’ve inherited control of a traumatized dictatorship, and I want to turn it into a capitalist liberal democracy, how should I go about reforming things without causing things to fall apart like they did in the Soviet Union or Iraq?

Caplin offers his best guess:

Consider it a recipe, not an endorsement.

Step 1: Purge known hard-liners en masse, without warning, Godfather style.

Step 2: Swiftly liberalize the economy and civil society from this position of strength, while unequivocally affirming your monopoly on political power.

Step 3: During the same period, open up your society to foreign business, tourism, media, NGOs, etc.

Step 4: Once you’ve had 4–6 years of strong economic growth and rising international prestige, slowly relax your monopoly on power. Always make it clear that you are acting out of the goodness of your own heart, not under pressure from the opposition.

Step 5: After 15–20 years, you’re ready for your first competitive national election. Put strong post-reform protection for your supporters into the constitution so they aren’t tempted to derail your plan.

A Plan which doesn’t rely on there being a greater fool to buy at a higher price

Friday, January 29th, 2021

If you’ve been following mainstream media coverage of /r/WallStreetBets and the wildly swinging Gamestop stock, Eliezer Yudkowsky notes, you may not be aware that /r/WallStreetBets has a Plan at all beyond “Let’s all buy the stock to pump it up, making all of us rich”:

But /r/WallStreetBets has a Plan — a Plan which doesn’t rely on there being a greater fool to buy at a higher price. I was quite surprised, when I first looked into the affair yesterday — surprised enough that I ended up writing this article despite having no specialist expertise or credentials. No, I’m not buying or selling Gamestop, and I won’t be recommending that you do so. I’m writing this because a certain feature of the affair is one I find interesting. On my home planet it would be front-page news, but the media here has other priorities; it hasn’t reported at all the interesting part, anywhere that I’ve read.

So what’s this Plan about? Roughly, it’s to engineer a short squeeze on Gamestop, but with a historically unprecedented twist. No, I can’t just tell you the twist right this minute and stop wasting your time. It legitimately takes some background to explain, unless you’re starting out understanding more than I did. In principle, one could deduce it just from having heard “/r/WallStreetBets has a plan to engineer a short squeeze on Gamestop”; but I had to be walked through several steps myself before I realized.

Sometimes, when you think you’re holding a stock in your account — say, GlomCo stock, for the sake of concreteness — your broker isn’t really holding all the shares of that stock. What your broker did instead, was charge somebody else to borrow some of the GlomCo shares it’s theoretically holding on behalf of end-consumers like you; then the borrower sells the GlomCo stock with intent to buy it back later and repay the loan. Key detail: whoever buys this stock may then have their broker quietly loan it out again in turn, behind the scenes.

Or more concretely, Alice buys 100 shares of GlomCo and holds them at Charles Schwab. Charles Schwab quietly loans those 100 shares to Bob, who short-sells them to Carol, who holds her shares at Fidelity, which quietly loans out 100 shares to Dennis, who sells them to Eileen. If you imagine that GlomCo only had 100 shares in the first place, then at the end of this operation there is “200% short interest outstanding” in GlomCo: Bob and Dennis have collectively borrowed-and-sold (and now owe back) 200 shares of GlomCo, or 2X as much as actually exists. That’s without “naked shorting” or selling synthetic copies of a stock.

[...]

The last I heard, Gamestop had 130% short interest outstanding. That is, short-sellers have collectively borrowed, and now collectively owe, 130% as much Gamestop stock as exists anywhere.
This happens, from time to time, in stock markets. When it does, it creates an opportunity for hedge funds to make a daring play. If a hedge fund can buy up enough of the company stock themselves, they can hold enough that the short-sellers have to go to the hedge fund to buy back the stock.

[...]

Cases surprisingly close to that have actually happened. In one of the legendary cases, Volkswagen was very heavily shorted, and Porsche announced it had bought up over 74% of Volkswagen… while around 55% of Volkswagen shares were held by index funds, effectively unavailable for trading at any price. That these two numbers sum to over 100% is not an error. Prices of Volkswagen shares spiked to where Volkswagen was briefly the most expensive company in the world. Or for another example, Martin Shkreli once engineered a 10,000% price rise via short squeeze on a small company called KalaBios. It’s not just a weird hypothetical theory; it has actually worked and people have collected huge profits on it.

This is what /r/WallStreetBets is trying to do with Gamestop — buy up enough of Gamestop themselves that there’s not enough other Gamestop shares left, on the broader market, to pay back the 130% outstanding shorts. If it works, it forces the short sellers to buy back some shares at whatever price /r/WallStreetBets decides to charge. The stock price is swinging as I revise this; when I wrote the first draft, as of Wednesday’s close the stock price was at $347, for a market cap of $24 billion. Gamestop was under $5 one year ago.

But so far as I know, this scheme has never before been successfully carried out by a large group of retail investors instead of a hedge fund. And there’s a fundamental reason for that! A group of retail investors face a technically interesting coordination problem in trying to engineer a short squeeze, a problem that one monolithic hedge fund does not face. So I will be really interested if /r/WallStreetBets pulls it off successfully, or even mostly successfully.

[...]

What most mainstream coverage I’ve seen, tries to insinuate is going on, is that /r/WallStreetBets is just a horde of suckers on the Internet, trying to buy up enough of some random company that the stock price skyrockets, hoping they’ll all get rich. From reading mainstream coverage, I didn’t realize there was a Plan beyond this; until I mentioned the issue on Twitter, and some more knowledgeable people graciously corrected me. But indeed, if that were all that was happening, it would be a classic “pump” scheme; which can’t generate net profits for all of the buyers, because the buyers are playing a zero-sum game among themselves.

[...]

If too many of them try to sell all their shares back, when the price goes astronomical— then the very very earliest sellers may make a vast profit. But the share price will start dropping fast, and only the earliest sellers will get Lambos.

[...]

If too many people defect and sell 100% right away, the scheme collapses. The stock price may drop precipitously if it looks like that might be starting to happen; and then the scheme is only repairable if that causes enough of /r/WallStreetBets to lock up, hunker down, and wait for the price to go back up again. If instead it panics a large-enough fraction of squeezers into selling 100%, the whole scheme is over.
This is why short squeezes are usually engineered by a monolithic hedge fund — it doesn’t face the same coordination problems internally.

For a hundred thousand people to do the same would be unprecedented! I don’t just mean that the particular scheme of short-squeezing is unprecedented; I mean that I’ve never heard of human beings successfully solving a coordination problem built out of thousands of strangers, with big financial payouts for early defection and zero ability to enforce against defection.

Instead of realizing its own Sputnik moment, it is triggering one in China

Tuesday, January 19th, 2021

The US responded to the rise of the USSR and Japan by focusing on innovation, Dan Wang says, but so far the US is responding to the technological rise of China by kneecapping its leading firms:

So instead of realizing its own Sputnik moment, it is triggering one in China.

This year, the US doubled down. It produced two rounds of novel restrictions on Huawei, threatened wider restrictions on Tencent and ByteDance, forced the sale of TikTok to a US consortium, and limited technology exports on SMIC, DJI, and dozens of other companies. Aside from Alibaba, it’s hard to name many big Chinese tech firms that have not faced sanctions or the threat of one from the US.

The actual effects of these regulatory actions have been uneven. Designation to the entity list hasn’t always had a major impact on every company’s operations. Federal courts have tied up the bans on Tencent’s WeChat and ByteDance’s TikTok. At the same time, Huawei is trying to work through major difficulties, especially in its smartphone business. TikTok, China’s most successful tech export, still might be sold off. And more generally, Chinese firms are starting to be locked out of developed markets. Lack of access to the richest and most discerning consumers makes it more difficult to make the best products in the world.

The US can revel in Huawei’s pain. But its actions have not been costless to itself. By withholding components that Chinese companies have relied upon, the US government has turned American firms into unreliable suppliers. These restrictions can sometimes block non-American firms from making sales too. In an extraordinary assertion of extraterritoriality, the US declared in August that any company, anywhere in the world, needs to apply for a license to sell a product to Huawei if it is produced on the basis of US technologies.

Nothing can be easier to destroy than trust. Chinese companies have responded by de-Americanizing their supply chains because they have no choice. US politicians can observe the sometimes-devastating impacts of sanctions. What they don’t seem to realize — or want to believe — is that they’re simultaneously pummeling the American brand writ large. I’ve documented for Dragonomics the uncomfortable questions American companies tell me they’re starting to face on whether they can credibly be long-term suppliers. Elsewhere, the Economist has reported that even poultry farmers in China are wondering if they’ll be able to import baby chicks from the US. And there are now multiple reported instances of Japanese companies marketing themselves as more reliable than their American competitors. Moreover, I hear growing unease from companies in the rest of Asia and Europe on buying American. Can everyone really be sure that this denial campaign will be limited to a handful of bad Chinese actors? Or is a better model of the US government that once it has found a fun new toy, it will keep playing with it until it is no longer fun?

With these regulations, the US has initiated one of the greatest and strangest antitrust actions ever, against potentially all American exporters. The US Treasury has for years expressed worry about the potential decline of the dollar’s dominance following excessive use of blocking sanctions. This fear is turning into reality for the real economy. One might expect alarm bells to be going off in DC, but it doesn’t appear that there’s much pushback against these regulations, except for murmurs from trade associations. It’s possible to defend these moves as correct — for example by justifying that the costs on American firms are worth it for the chance to slow Huawei down right now — but the government does not appear to have had a vigorous debate about the tradeoffs. Instead, the strategy seems to be a result of bureaucratic kludges, pushed forward by whichever faction has the upper hand, made mostly because the financial sanctions office has resisted dealing a serious blow to Huawei in a single stroke.

For the most part, the control hawks faction of the government has had a run of the table, shown by the fact that US agencies have been more focused on taking down Chinese firms than extending US strengths. At a time when it’s more important than ever to advance its semiconductor companies, the government is crippling their sales to their largest or fastest-growing market. When research capabilities at US universities need to grow, the government is denying them students. And when the US should be attracting more talent to its shores, the government has made it more difficult for people to immigrate. Thus the US looks committed to a strategy to destroy the scientific and industrial establishment in order to save it.

Meanwhile in China, these actions have triggered a surge of interest in mastering technology. For the first time arguably since the industrial rise of Japan in the 1950s, a major country is committed to thinking deeply about the invention of its own tooling. A whole generation of scientists and engineers must examine foundational problems like to build leading tools (like lithography machines) and create the best materials (like wafers and chemicals). And the state is fully behind that effort. After steady calls from Xi throughout the year to master technology, the Central Economic Work Conference announced in December that science and technology work will be the top priority in 2021; the conference has never broken science and technology out as an independent item, never mind give it top spot.

China is the country with the most can-do spirit in the world

Sunday, January 17th, 2021

This convinced Dan Wang that China is the country with the most can-do spirit in the world:

Every segment of society mobilized to contain the pandemic. One manufacturer expressed astonishment to me at how slowly western counterparts moved. US companies had to ask whether making masks aligned with the company’s core competence. Chinese companies simply decided that making money is their core competence, and therefore they should be making masks. The State Council reported that between March and May, China exported 70 billion masks and nearly 100,000 ventilators. Some of these masks had problems early on, but the manufacturers learned and fixed them or were culled by regulatory action, and China’s exports were able to grow when no one else could restart production. Soon enough, masks were big enough to be seen in the export data.

It’s obvious that the authorities in Wuhan screwed up big, but it’s also the case that the central government organized an effective response to virus containment. It’s not just the manufacturers: the consumer internet companies leapt into action in a way that their US peers did not. Francis Fukuyama states that high-trust societies have “spontaneous sociability,” in which people are able to organize more quickly, initiate action, and sacrifice for the common good. On each of these metrics, I submit that China should receive high marks.

As every discussion on China grows more strident, and as every proposition about it has to be vested with sentiment, I submit that it’s all the more important to be able to see things as they are. That entails having coming to terms not just with a rise of its repressive capabilities, but also with its growing commercial and institutional strengths. US elites have abandoned the idea that China would liberalize nicely. They should put another idea to bed: that this authoritarian system, riddled with weaknesses, is on the brink of collapse. The country’s strengths are real and improving while the government becomes more nasty towards its critics and the rest of the world.

[...]

It’s difficult to draw a clear line from tighter speech restrictions to worse economic outcomes. Greater censorship over the last decade has coincided with still-impressive levels of economic growth as well as the growing competitiveness of many more companies. And I think it’s worth considering that the authoritarianism of the late-Prussian and early-German state coincided with the creation of the modern research university as well as fantastic advances in chemistry, physics, and electrical engineering.

But there’s more on-the-ground evidence that ordinary people are growing nervous. In so many settings, one has to tread on eggshells in a public discussion in China, with organizers taking pains to remind audience members of sensitivities. Sometimes even in private, people beg off with an embarrassed laugh that they can’t discuss a subject due to unspecified difficulties. WeChat blocks sensitive keywords, which today includes “decoupling” and “sanctions.” It’s now inconvenient to use the app for professional conversations, and I’ve been pretty insistent to my contacts to use Signal instead. And since I brought up Germany, I wonder if the right analogy for China today is as a successful East Germany.

We should avoid the nirvana fallacy

Monday, January 11th, 2021

We are nowhere close to utopia, Arnold Kling reminds us, and we cannot see how to get there:

A major reason for this is lack of knowledge. We know today much more than we knew one hundred years ago. It seems reasonable to expect that in another hundred years, today’s level of knowledge will seem low. If we look at all of the past beliefs that today seem wrong-headed, we should be hesitant to commit to what we believe now.

[...]

1. We should be humble about predicting the consequences of public policies. In an economics textbook, a single “market imperfection” is shown in isolation, with the implicit assumption that everything else is perfect. Under those assumptions, the right tax, subsidy, or regulation can reliably produce improvement.

Most economists are familiar with the “theory of the second best,” which points out that trying to fix one problem, when there are other problems or constraints, can make things worse. This is a useful concept, but it only scratches the surface of strong imperfection.

2. We should welcome trial-and-error learning. The economic and social progress we have made is largely due to trial and error, not central planning. Because of strong imperfection, we know that many flaws and problems still exist. It is likely that solutions will come from trial and error going forward, just as in the past.

3. We should try to limit the number of personal flaws that we see as inexcusable. Both as a society and as individuals we should try to extend tolerance and forgiveness. Given our current state, I do not think we can do away with prisons, but I think we should be aiming in the direction of limiting their use. I also think that we should be reducing the number of “firing offenses” in the work place, not adding to them. As individuals, we should aim to reduce the set of excuses for cutting people off as friends.

4. We should avoid the “nirvana fallacy,” which involves comparing the current state to a perfect state. The most realistic change is likely to be from an imperfect current state to another imperfect state.

5. We should resist becoming Manichean. The motives of opponents are usually not as bad as we are inclined to make them out to be.

Capitalism was designed for outsiders

Tuesday, December 29th, 2020

A February 2019 Harris poll found that roughly half of younger Americans would “prefer living in a socialist country”:

What many young people today don’t realize is that socialism is a machine for empowering insiders. Few insiders have ever been rewarded more assiduously than the nomenklatura of the Soviet Union. Few governments have been as gray — in every sense of the word — as the Brezhnev regime. A vast expansion of the American government, as imagined by today’s Democratic Socialists, would create its own privileged elite.

From its inception, by contrast, capitalism was designed for outsiders. Its original apostles, such as Adam Smith, argued that entrepreneurs needed freedom from the royal regulations that limited trade and the formation of new enterprises. When the government controls decisions to work or to start a business, political pull becomes a prerequisite for success. The whole point of economic freedom is that all people — not just the connected — can use their talents to help themselves and, potentially, to change the world.

These days, capitalism’s advocates often focus more on defending the status quo than on promoting outsider opportunity. If capitalism is to win over the young, that must change—and a new freedom agenda can help make that happen. In January 1941, Franklin Roosevelt announced his four freedoms (of speech and worship, from want and fear) that helped frame his objectives for World War II, which the nation would enter before the end of that year. Our contemporary outsiders would benefit from a renewal of four key freedoms: to build, to work, to sell, and to learn. The young need fewer land-use restrictions that make it tough to provide affordable housing in productive areas. They need fewer employment rules that limit their ability to find work, as well as fewer business regulations that suppress entrepreneurial energies. And — even before these other important things — they need new educational options that liberate them from underperforming educational monopolies.

In 1981, the social scientist Mancur Olson published his magisterial The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities. Olson had already won acclaim for The Logic of Collective Action, which explained why some groups received an outsize slice of the political pie. In his new book, Olson turned to the question of why nations fail. His thesis: nations lost dynamism when insiders managed to stack the rules against disruptive outsiders.

Stable societies with unchanged boundaries, Olson observed, “tend to accumulate more collusions and organizations for collective action over time.” Instead of accepting rules that encourage overall growth, these collusive organizations — trade groups and labor unions were paradigmatic examples — fight to keep what they have, slowing down “a society’s capacity to adopt new technologies and to reallocate resources in response to changing conditions,” thus reducing economic efficiency. Decline follows.

Olson pointed to Japanese stagnation under the Tokugawa shogunate, when, “before Admiral Perry’s gunboats appeared in 1854, the Japanese were virtually closed off from the international economy.” Ruling Japanese society, he writes, “were any number of powerful za, or guilds, and the shogunate or the daimyo often strengthened them by selling them monopoly rights.” The guilds “fixed prices, restricted production and controlled entry in essentially the same way as cartelistic organization elsewhere.”

A second example: Great Britain, “the major nation with the longest immunity from dictatorship, invasion and revolution” and, consequently, Olson explained, suffering “this century a lower rate of growth than other large, developed democracies.” In Olson’s view, the weak performance resulted from limits on change established by a “powerful network of special-interest organizations,” which included labor unions, industrial groups, and aristocratic cliques. By the 1970s, after the conservative government of Edward Heath fell in a losing battle with striking miners, many deemed Britain ungovernable. Olson contrasted the British situation with that of postwar Germany and Japan, where the chaos and destruction of wartime defeat wiped away established industrial and retail groups, leaving the field open to newcomers like Soichiro Honda or the Albrecht family (creators of international supermarket giant Aldi), who could work economic magic.

A brief history of commercialising Christmas

Saturday, December 26th, 2020

Tim Harford provides a brief history of commercialising Christmas:

Stephen Nissenbaum, author of The Battle for Christmas, points out that a crucial shift happened when the festival became a domestic occasion, rather than the anarchic street revels the puritans were so desperate to suppress.

When Clement Clarke Moore penned the line, “’Twas the night before Christmas”, nearly 200 years ago, Christmas Eve in his home town of New York was pandemonium — the streets patrolled by noisy gangs of yobs. Moore wanted to evoke a quiet stay-at-home family Christmas with not a creature stirring, not even a mouse. And of course, once Christmas became a family affair, traditional wassailing gifts of food and drink made less sense: people began exchanging shop-bought presents instead.

The commercialism of the Coca-Cola Santa and the Montgomery Ward Rudolph, then, built on a retail revolution of the early to mid-19th century. Advertisements for Christmas presents appeared in the US in the 1820s, and Santa Claus himself was wholeheartedly endorsing products by the 1840s.

In 1867, Macy’s store in Manhattan accommodated last-minute shopping by opening until midnight on Christmas Eve. That was the same year Charles Dickens read A Christmas Carol to thousands of people in Boston, the keeping of Christmas no longer being punishable in Massachusetts by a five shilling fine. (Dickens’s fabulous tale is expansive on the theme of generosity and, when you think about it, rather light on mentions of the baby Jesus.)

The backlash to the retail Christmas was quick to emerge. “The days are close at hand when everybody gives away something to somebody,” complained one letter published in a Boston magazine in 1834, adding, “I…am amazed at the cunning skill with which the most worthless as well as most valuable articles are set forth to tempt and decoy the bewildered purchaser.”

It is a familiar sentiment, as is the author Harriet Beecher Stowe’s complaint, in 1850, that “there are worlds of money wasted, at this time of year, in getting things that nobody wants and nobody cares for after they are got.”

The lack of democracy under British rule was a key component of Hong Kong’s ascent

Wednesday, November 4th, 2020

Back in 2005, Bryan Caplan noted that Hong Kong has had the freest economy in the world and had since 1970, the earliest year covered by the Economic Freedom of the World data set:

Indeed, it’s higher now [in 2005] under the Communists than it was in 80’s! And it’s hard to deny that Hong Kong has been an economic miracle since World War II. So even though Hong Kong was not a democracy before the Communist takeover, it’s very tempting to believe that the people of Hong Kong would have voted to retain (if not initially adopt) the free-market policies they had.

[...]

But it turns out that Hong Kong’s support for laissez-faire is only skin-deep. As soon as you ask people their opinions about specific interventionist policies — all of which, note the authors, “have either not been performed by the government or performed only very light or rarely,” they show their true statist colors.

[...]

To be blunt, it looks like the lack of democracy under British rule was a key component of Hong Kong’s ascent. The policies worked wonders, but they never became democratically self-sustaining. In politics, people often resist policy change just because “things have always been this way,” even if the results were never very good. But free-market policies apparently labor under a greater political handicap. Even if “we’ve always left these things to the free market,” even if leaving things to the free market has worked in the past, it just isn’t enough to win over public opinion.

Countless market-oriented intellectuals idolize Hong Kong but I’ve never heard of, much less met, a Hong Kong libertarian. Google confirms my impression, returning no relevant hits for “Hong Kong libertarian.” I’d like to think, then, that Hong Kong’s problem was a shortage of libertarian intellectuals to transform freedom by default into freedom on principle. But sadly, I suspect that wouldn’t have been enough either.

These are conditional virtues

Thursday, October 22nd, 2020

Bryan Caplan doesn’t expect policies to get too much worse:

The same psychological force that thwarted the masses’ wishes before 2012 continues to shield us. What is that force? For want of a better term, ADHD — Attention Deficit Hyperactivity Disorder. Populist policy preferences go hand-in-hand with intellectual laziness and intellectual impatience. As a result, populist voters fail to hold their leaders’ feet to the proverbial fire — allowing wiser, elitist heads to prevail.

Take protectionism. Keeping imports out of our country is perennially popular. Never mind centuries of economics classes on the wonders of comparative advantage; the masses are convinced that cheap foreign products make us poorer. Given public opinion, then, it’s amazing that trade barriers are as low as they are. What’s particularly striking is that presidential candidates routinely make protectionist noises to curry favor with the masses. Once elected, however, they get convenient amnesia.

Why would vote-seeking politicians show so little follow-through? Because talking about foreign trade, titillating at first, gets old fast. And actually measuring the change in trade barriers bores the masses instantly. As a result, protectionist promises are cheap to break. The masses delight to hear politicians vow to get “tough on China,” but they don’t want to have to think about Chinese imports months after the election, much less monitor their leaders’ concrete efforts to cut China down to size.

[...]

Emotionally, I look down on the public’s ADHD. When I get an idea into my head, it stays there until someone (possibly myself) argues me out of it. I’m a puritan. Once convinced something is true, I tenaciously act on it. But I’m the first to admit that these are conditional virtues. If you’ve genuinely figured out the right thing to do, determination and follow-through are wonderful. Otherwise, though, they’re a menace.

Mankind can and should shape up across the board, but it won’t. I’ll bet on it. And since mankind won’t discover a passion for rationality anytime soon, we should be thankful its ADHD isn’t going away either.

Paying protection money was part of the cost of doing business in Afghanistan

Monday, September 28th, 2020

Westerners tend to be rather naive, as a recent recent Freakonomics podcast, When Your Safety Becomes My Danger (Ep. 432) illustrates:

Gretchen PETERS: I’ve heard the argument that paying protection money was part of the cost of doing business in Afghanistan. And I think it is a terrible, terrible argument. It’s just self-defeating for an organization to pay protection money and not deal with the problem from the start.

[...]

PETERS: He got a phone call one day from one of his team members saying the Taliban just fired a couple of R.P.G.’s at our project. Nobody’s been hurt. And so, he called up the Taliban commander and said, “What’s the problem? You told us you weren’t going to attack us anymore.” And he said, “No, no, nobody got hurt. We intentionally missed. But your payment’s due. You need to get over to the hawala market and send me my money.” And he said, “Oh, yes, I’m so sorry.” And went over and paid the money right away.

[...]

PETERS: So, the Taliban would fire warning shots when the bills were due. And they would often launch non-lethal attacks just before a contract was due. And that seemed to be an effort to try and get their security contracts renewed. And that would perpetuate this completely corrupt system.

[...]

Anja SHORTLAND: So, the question is, “Do you want to be economically active in territory that is controlled by the Taliban or not?”

[...]

SHORTLAND: If you do want to be active in that territory, you’ve got to make it somewhat in the interest of the Taliban. If they don’t get any economic benefit from your company being there, then they will attack you by any means possible.

[...]

SHORTLAND: You minimize the kidnapping by making sure that the people who control the territory get a certain flow of funds.

[...]

SHORTLAND: That is actually 99 percent of the business. So, it is disequilibrium behavior — as long as everyone pays, there is no need to kidnap anybody.

[...]

SHORTLAND: I started off with Somali pirates, and what really struck me about piracy was how many happy ends there were. How generally nonviolent it was from the moment that the pirates got on board, and how well the trades functioned.

[...]

SHORTLAND: I do find that if they work, then it is because somebody is making them work, somebody is creating institutions that turn what can be very tricky, one-off trades into repeated interactions. It’s about creating self-enforcing contracts.

[...]

SHORTLAND: When there is a famine in southern Somalia, and you want to get relief supplies in there, basically, you have to contract the trucking out and you have to accept that 50 percent of the supplies will disappear. So, the question is, “Do you want to provide relief supplies, knowing that a large proportion of it will end up in the hands of the Shabaab?” If you say no, then there is no way of delivering the aid.

[...]

SHORTLAND: That’s right. Or you’re trying to establish a protection protocol. But in general, it’s better for them to take their protection money and not bother anybody. And so, even if you’re working in a country that has an endemic kidnapping problem, it is possible for companies to keep their employees safe from kidnap by making some concession to whoever poses the risks to them.

Stephen DUBNER: When you say, “some concession,” usually in the form of some protection payment, yes?

SHORTLAND: Well, you would frame it in terms of, perhaps, a corporate social responsibility program, or you do a joint venture, or you do some community engagement. There are lots of words for this. The protection contract is implicit. It’s never spelled out. It is through subcontracting. And the more layers you can put between yourself and the warlord, the better this is going to work in terms of being caught by the media. It’s all about plausible deniability.

DUBNER: So, would “tax” be a better word generally?

SHORTLAND: Well, that’s effectively what it is. But if people are not really sure whether the cartel or the rebel group or the insurgents have the capacity to actually kidnap, they might skip a protection payment, which is effectively tax evasion and then they decide that they have to prove that they can do it, and then they will. And in a way, kidnap for ransom is a really good way of backing up that kind of threat because nobody needs to get hurt.

DUBNER: Now, of all the criminal enterprises and cartels and pirates that you’ve researched, how does the Taliban compare in terms of their efficacy and organization and ability to execute these plans?

SHORTLAND: Well, they control a lot of territory. And they use that territory to grow very high-value crops, like drugs. And therefore, they’re very well-resourced. And they also have a certain amount of legitimacy with the people whose territory they control. And therefore, they are very effective at delivering violence and that is and something that the U.S. government has recognized.

PETERS: In percentage, I can tell you that the Taliban were making about 25 percent of their budget in protection payments.

There’s only so much erosion a tax base can take before it starts to crumble from the inside

Thursday, September 24th, 2020

A former Bloomberg mayoral campaign manager says that New York City is in deep trouble:

In local political circles, it’s now fashionable to scoff at doomsday predictions and say that just as New York City came back in the 70s, came back in the 90s, and came back after 9/11, it will now too. It’s fashionable to say that even if some traditional office-based industries cut back significantly, the cheaper rents will lead to an artistic and technological renaissance that will spark new industries, trends and energy that will make the city better than ever.

Unfortunately, that’s probably more wishful thinking than anything else.

What we’re facing now is different: the beginning of a far more transformational shift in how we work, in many ways echoing the flight of manufacturing from the United States in the mid-late 20th century. Until now, there was a basic assumption that most white-collar employees would work in an office. Only something like a six-month quarantine could have challenged a norm so ingrained in our society.

[...]

There’s only so much erosion a tax base can take before it starts to crumble from the inside. Great American cities like Detroit, Baltimore and Cleveland were all decimated by the flight of manufacturing. Despite some well-intentioned marketing campaigns to the contrary, none of them really ever recovered.

New York has always been resilient because we’ve always been the physical home of industries like finance and media, law and advertising and health care. And not just one industry like some insurance towns, but many industries.

But that’s only because the idea that you don’t have to be anywhere else never occurred to anyone before.

[...]

Short term, the answer is to do everything possible to keep the city as appealing as possible. That means investing in quality of life measures like trash pickup and graffiti removal. It means figuring out how to curb abuses by law enforcement against blacks and Latinos while still bringing down the rate of shootings.

It means making the city an attractive place to do business. If you want to save jobs and help working people, raising taxes and adding regulations will only have the opposite effect.

Longer-term, it means trying to use newly vacant office space to spur new industries. It means reducing the cost of operating municipal and state government so that spending meets what the new tax base can actually afford.

It means having a mayor willing to personally call every major employer to ask what she or he can do to make them happy here, rather than having a mayor who is constantly trying to drive jobs away. And it means knowing that none of this may be enough and having five more approaches ready to go.

North America inherited British government and British democracy

Wednesday, September 2nd, 2020

As a geographer, Jared Diamond has some thoughts on North America and Latin America:

In my undergraduate geography course, I have one session on North America and then a session on South America in which I discuss why North America is more successful economically. There are several factors involved.

One factor is that temperate zones, in general, are economically more successful than the tropics because of the higher productivity and soil fertility of temperate agriculture, which in turn relates to the public health burden. All of North America is a temperate zone. South America only has a small temperate zone. It’s in the far south in Chile, Argentina and Uruguay. Those are the richest countries in Latin America. The richest part of Brazil also lies in the temperate zone.

The second factor is a historical one related to the sailing distance from Europe to the Americas. The sailing distance was shorter from Britain to North America. It was longer from Spain to Argentina and still longer from Spain around the horn to Peru. A shorter sailing distance meant that the ideas and technology of the Industrial Revolution spread much more quickly from Britain, where it originated, to North America, than from Spain to Latin America.

Still another factor is the legacy of Spanish government versus the legacy of British government. One could argue why democracy developed in Britain rather than in Spain, but the fact is that democracy did develop in Britain rather than Spain, and so North America inherited British government and British democracy while Latin America inherited Spanish centralist government and absolutist politics.

Then still another factor is that independence for the U.S. was a more radical break than it was in South America. After the Revolutionary War, all the royalists in the U.S. either fled or were killed. So there was a relatively clean break from Britain. Canada did not have that break, and the break in Latin America was much less abrupt and came later.