tag:blogger.com,1999:blog-17167688518676575522024-03-05T12:53:06.473-08:00CybereconomicsDessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.comBlogger720125tag:blogger.com,1999:blog-1716768851867657552.post-24805992808323223652022-10-01T14:30:00.006-07:002022-10-01T14:36:13.299-07:00Covid<p>A series of three blog posts about the governments response to Covid:</p><p><a href="https://behindtheblack.com/behind-the-black/essays-and-commentaries/part-1-the-ugly-corrupt-lie-of-the-experimental-covid-jab/" target="_blank"> https://behindtheblack.com/behind-the-black/essays-and-commentaries/part-1-the-ugly-corrupt-lie-of-the-experimental-covid-jab/</a></p><p><a href="https://behindtheblack.com/behind-the-black/essays-and-commentaries/part-2-how-the-liars-spread-the-ugly-corrupt-lie-of-the-covid-jab/" target="_blank">https://behindtheblack.com/behind-the-black/essays-and-commentaries/part-2-how-the-liars-spread-the-ugly-corrupt-lie-of-the-covid-jab/</a></p><p><a href="https://behindtheblack.com/behind-the-black/essays-and-commentaries/part-3-against-the-covid-liars-and-their-strong-arm-edicts-the-wheels-of-justice-are-grinding-forward-slowly/" target="_blank">https://behindtheblack.com/behind-the-black/essays-and-commentaries/part-3-against-the-covid-liars-and-their-strong-arm-edicts-the-wheels-of-justice-are-grinding-forward-slowly/</a></p>Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com1tag:blogger.com,1999:blog-1716768851867657552.post-27438515139115368222019-07-03T14:54:00.000-07:002019-07-03T14:54:28.986-07:00Scammers<a href="https://apelbaum.wordpress.com/2019/06/02/military-romantic-scams-the-theory-and-practice/">Here</a> is an interesting article about the military-romantic scam that is run out of Africa and that cost gullible American women millions of dollars. The author was able to upload spyware onto their computers and thus trace everything they were doing. My favorite quote from the article:<br />
<blockquote class="tr_bq">
An interesting anomaly that was later confirmed to be a wide scale trend was the frequent appearance of President Obama’s picture in many of the scammer workspace images (Image 21). Seventeen out of forty workspace images exhibited this trend. It turns out that BHO is considered to be the patron saint of the scammer industry in Nigeria and Ghana and is viewed as the ultimate scamming success story that everyone is trying to emulate.</blockquote>
Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-9809501118536082442016-08-02T16:13:00.000-07:002016-08-02T16:13:58.942-07:00The Check TaxFrom the <i>NBER Reporter</i> Fall 1995 page 31, summarizing William D, Lastrapes and George Selgin, University of Georgia, “The Check Tax and The Great Contraction”, a paper delivered at the Workshop on Macroeconomic History, Oct 13 In Cambridge, Mass.<br />
<br />
<blockquote class="tr_bq">
“Although its role has been overlooked by monetary historians, a two cent tax on bank checks effective from Jun 1932 through December 1935 appears to have been an important contributory factor to the periods severe monetary contraction. According to estimates by Lastrapes and Selgin, the tax accounted for between 11 percent and 17 percent of the total increase in the ratio of currency to demand deposits and for between 11 percent and 19 percent of the total decline in M1 between October 1930 and March 1933. The contractionary consequences of the check tax had been anticipated by many legislators, but they were unable to prevent the measure from being included in the Revenue Act fl 1931.”</blockquote>
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The resulting paper can be found at <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=33320">papers.ssrn.com/sol3/papers.cfm?abstract_id=33320</a><br />
<br />
I have read a fair amount about monetary history and the Great Depression and I do not recall hearing about the check tax.<br />
<br />
(This piece is the result of reading and discarding old publications of the NBER.)<br />
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Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-24795146464093888452016-05-10T05:28:00.001-07:002016-05-10T05:28:34.840-07:00Cereal crops vs root crops in the development of civilizationDid the potato and other root crops hinder the development of complex societies among those who cultivated it? A group of economists present a case that they did in a <a href="https://www.washingtonpost.com/news/wonk/wp/2016/04/25/the-secret-ancient-history-of-the-potato-that-could-change-the-story-of-civilization/">recent article, "The sinister, secret history of a food that everybody loves,"</a> in the <i>Washington Post</i>. Their thesis in short is that when cereal grains are harvested at the end of a growing season their storage attracts thieves. Those who grow the crop want it protected. Because the stored crop is easily taxed, it encourages the rise of a protector class. Thus cereal crops provide both the demand for protection and the supply of protection. Root crops, on the other hand, are not harvested and stored but are dug and used as needed. Without storage bins full of wealth, there is less temptation for thieves because they would have work digging a crop and they cannot store it. Hence, the demand for protection is less and the way to finance that protection is also more difficult. The result is that societies that grew cereal crops developed complexity and hierarchy that the societies that grew root crops did not.<br />
<br />
This is a logical way for economists to view the issue. Not all anthropologists are convinced.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-52433840500701130542016-04-07T21:04:00.000-07:002016-04-07T21:04:37.069-07:00The science was settled<a href="http://www.theguardian.com/society/2016/apr/07/the-sugar-conspiracy-robert-lustig-john-yudkin">The Sugar Conspiracy</a> is a long article that argues that the epidemic of obesity was caused by nutritionists, a group that has for years almost unanimously promoted a low-fat and therefore a high carbohydrate diet: "Harder, too, to deflect or smother the charge that the promotion of low-fat diets was a 40-year fad, with disastrous outcomes, conceived of, authorised, and policed by nutritionists."<br />
<br />
What happened in nutrition is reminder that the process of science is not the pure pursuit of truth that some think it is and that peer review is not a guarantee of quality. Peer review can be stifle criticism and protect incumbent theories from evidence. Personalities, reputations, and politics play important roles in science and incentives matter. From the article: "When I asked Lustig why he was the first researcher in years to focus on the dangers of sugar, he answered: 'John Yudkin. They took him down so severely – so severely – that nobody wanted to attempt it on their own.'"Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-68330393836018442672016-03-06T17:19:00.000-08:002016-03-06T17:19:57.679-08:00Let's repeal the law of supply and demand<br />
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/H8rjD4Gth58" width="560"></iframe>
<br />
Found on Powerline:<br />
<a href="http://www.powerlineblog.com/archives/2016/03/the-best-sanders-endorsement-yet.php">http://www.powerlineblog.com/archives/2016/03/the-best-sanders-endorsement-yet.php</a>Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-33063063037246920992015-08-24T18:51:00.000-07:002015-08-24T18:51:03.953-07:00Betty Glan<div class="p1">
<span class="s1">In <i>The Forgotten Man</i> (HarperCollins, 2007) author Amity Shlaes recounts a visit to the USSR in 1927 by a group of American intellectuals including Paul Douglas, economist and future Illinois Senator. After Douglas gave a talk at a factory, the workers started chanting "Sacco and Vanzetti," the names of two anarchists who had been convicted of terrorism and recently executed in the U.S. Their execution had been used by the Soviet Union for propaganda to denigrate the U.S. Although sympathetic to the Sacco-Vanzetti cause, Douglas pushed back, replying that Sacco and Vanzetti had had the benefit of a full legal defense. He contrasted their treatment with that of two local bank clerks he had heard about. They had been arrested at two in the morning, sentenced at four, and executed at six. </span></div>
<div class="p2">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">What Douglas would remember from the incident was a young woman named Betty Glan who came forward and told him, "You talk only about individual justice. This is a bourgeois ideal." They talked about an hour, and on leaving, Ms Glan remarked, "History will prove us right and you wrong." (p 75)</span></div>
<div class="p2">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">A decade passed and Betty Glan reappears:</span></div>
<div class="p1">
<span class="s1">"The next year Douglas would happen to be reading an item in the <i>New York Times</i> about a Trotskyite leader whom the Russian secret police had executed, and recognized the name with a start: Betty Glan. It was the Russian woman who had come up to him on his 1927 tour. Murdering one's corevolutionists seemed the very opposite of the liberalism the American Left saw as part of the spirit of revolution. What was the point of revolution, anywhere, if it led to this?" (p 321)</span></div>
<div class="p2">
<span class="s1"></span><br /></div>
<br />
<div class="p1">
<span class="s1">When I read this account I wondered if we should feel sorry for people like Betty Glan who in their quest to do good actually support and promote evil that ultimately consumes them. Glan had no sympathy for the bank clerks who were summarily executed because it was done for a cause that she thought would bring heaven on earth. Why should we have any sympathy for her when she was executed in the same way? We can feel sorry that the Betty Glans of the world stupidly align themselves with evil, but should we feel more?</span></div>
Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com2tag:blogger.com,1999:blog-1716768851867657552.post-31304906254264379122015-08-14T05:02:00.001-07:002015-08-14T05:04:21.565-07:00A quote about Argentina"For example in the 1920s, Argentina had a larger market capitalization than did the United Kingdom. However, its equity maraket all but disappeared by the 1930s." (Source: Campbell R Harvey, "The Future of Investments in Emerging Markets," <i>NBER Reporter</i>, Summer 1998, p 6.)<br />
<br />
Argentina was doing something right early in its history but then changed course and has never been able to find its way back to first-world status.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-46130056428630474202014-08-22T07:24:00.000-07:002014-08-22T07:25:41.624-07:00Reflections on The Big Short by Michael LewisIn <i><a href="http://www.amazon.com/gp/product/0393338827/ref=as_li_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=0393338827&linkCode=as2&tag=ingrimayne-20&linkId=WZXTDQIY3AIAIBDB">The Big Short</a> </i>Michael Lewis tells the story of the financial meltdown of 2007-2008 from the point of view of several people who saw it coming and tried to find ways to profit from it. The story involves complex financial contracts and activities such as asset-backed bonds, collateralized debt obligations (CDOs), credit default swaps, and short selling. Lewis skillfully integrates the explanation of these concepts with his tale of individuals who recognized that bonds backed by subprime mortgages (mortgages made to people with poor credit scores) would fail. As a result, the reader is not overwhelmed with technical details of complex concepts.<br />
<br />
After reading how those who bet against the market were vindicated, several messages should remain with readers. The experts and very smart people at the center of this market had no clue as to what would happen even though the end outcome was obvious in hindsight. When those making the loans no longer had to worry about whether the loans would be repaid, the smart people should have recognized that loan originators no longer had an incentive to worry about loan quality, and thus quality would inevitably fall, ultimately resulting in high defaults. Their assumption that housing prices would only rise was reckless. It was not the smart insiders and experts who first recognized that the market was flawed. Outsiders, people often on the fringes of investing, like a California MD with Asperger's syndrome, were the first to understand the situation. Although Lewis does not explore why the insiders were so blind, it seems obvious that group thinking and wishful thinking played huge roles. The insiders had found a way to make vast amounts of money and they wanted to believe that it was sustainable, so they did. Being smart does not immunize one from self deception--rather the hubris of smart people may make them more susceptible.<br />
<br />
The pessimists of the story, who were the realists, wanted to bet against subprime mortgage-backed securities, but they struggled to find a way to do so. Eventually they discovered credit default swaps, which in simple terms are insurance policies on bond. As long as the bond is alive, the holder of the insurance policy must pay premiums. When the bond dies or is severely injured, the owner of the policy can collect. One does not need to actually hold the bonds to have an insurance policy on them. Further, it does not seem that this way of "shorting" the market has any corrective effect, unlike in the stock market, where shorting a stock helps drive the price down.<br />
<br />
Why were large financial institutions willing to sell these insurance policies? Again, the experts on Wall Street did not realize how risky these bonds were. In part that was because the rating agencies--Moody's, S&P, and Fitch--said they were safe. They rated the bonds based on models, and those models were based on the assumption that pooling assets reduces risk because though some will fail, most will not. That assumption is valid when the performance of assets is uncorrelated, that is, when what happens to one is independent of what happens to others, the way a second coin flip does not depend on the results of a first coin flip. When the assets are correlated, so that they tend to move together, diversification may not reduce risk. The models were flawed and the very smart people on Wall Street gamed them to get alchemy: lead was certified as gold.<br />
<br />
When the subprime mortgages finally crashed the world-wide financial markets, those who had bet against the subprime bonds walked away rich. But so too did those who had been originating, packaging, and selling the toxic financial instruments that had wreaked havoc. The U.S. government, fearful of total economic collapse, bailed out poorly run institutions and those who had caused the carnage walked away whole. Lewis does not blame the debacle on a lack of government regulation--if those at the center of the market did not understand what was happening, there is no chance that government bureaucrats would have. Rather he stresses the importance of incentives. When investment banks were organized as partnerships, the partners would suffer huge financial losses if the firm failed, so they worried a great deal about risk. When stockholders own the financial institution, managers have incentives to worry about the short run and not so much about risk and the long run. Top managers can and do walk away from companies that they have ruined with their wealth intact; life is not fair.<br />
<br />
<i>The Big Short</i> views the collapse of the market for mortgage-backed securities from a narrow perspective. Yet it is one of the best books I have read on the episode and certainly the most entertaining.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-68431432367844541922014-08-16T10:18:00.000-07:002014-08-16T10:41:33.128-07:00Review of Flash Boys by Micheal LewisNo one matches Michael Lewis' ability to take an arcane topic of finance and use it to build a narrative that is not only educational, but also a pleasure and a joy to read. In <i><a href="http://www.amazon.com/gp/product/0393244660/ref=as_li_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=0393244660&linkCode=as2&tag=ingrimayne-20&linkId=FKQ7RQCIVUXXRJCB">Flash Boys</a><img alt="" border="0" src="http://ir-na.amazon-adsystem.com/e/ir?t=ingrimayne-20&l=as2&o=1&a=0393244660" height="1" style="border: none !important; margin: 0px !important;" width="1" /></i>
the arcane topic is the way that computer geeks have been able to game the newly computerized financial markets, extracting billions of dollars from investors large and small. As in his other books, he uses the experiences of real people to build the narrative, and his main character in this book is a Brad Katsuyama, who begins the story as a stock trader at the Royal Bank of Canada (RBC).<br />
<br />
In 2006 Katsuyama noticed an anomaly in the market. He could see bids and offers in a variety of the different stock markets, but when he tried to make a trade, that stable market disappeared as if someone knew what he wanted to do before he acted. What the reader needs to know is that by 2006 the old world of individuals trading stocks on the floor of the stock exchange had disappeared, replaced by computers that matched buy and sell orders. Further, the market had fragmented, so that in addition to the old NYSE, NASDAQ, and American Stock Market, there were a dozen other markets, all matching orders with computers.<br />
<br />
Brad Katsuyama and the reader gradually learn that high-frequency traders, doing all their trading using computer programs, had learned how to rig the new market where a few milliseconds, less than the blink of a human eye, was enough time for a computer to execute many trades. What the high-frequency traders discovered is that a buy or sell order did not arrive at all the computerized exchanges at the same time and the delay allowed for an opportunity to "front run" it. Suppose an investor wanted to buy a large block of stock and looking at the market saw that plenty of shares were offered at the various computerized exchanges. The high-frequency traders would offer a small block on the first exchange at which the order arrived and this would allow them to see what the trader wanted to do. The high-frequency traders would use this information to race to the other markets to buy up the stock before the investor's order arrived. They would then sell those shares at a higher price to the investor. Although this may sound fantastic and impossible, it became the main activity for the high-frequency traders.<br />
<br />
To be able to game the market in this way, speed was everything. You wanted your trading computers to be as close to the market matching computers as possible, and the high-frequency traders paid the exchanges to allow their computers to be in the same building as the computers of the exchange. The price of having a company's computer in the building depended on how close it was to the computer that ran the market. The high-frequency traders also paid to get the fastest communications links because the time that it took light to travel a hundred feet could make the difference between making money and being too late to the deal.<br />
<br />
Lewis explores all this from the view of traders trying to discover what was happening to their trades. It would have been even more interesting, perhaps, to have traveled with those who discovered how to rig the system, but they have an incentive to remain silent. After all, a reason for their success was that people did not understand what they were doing. (And even after the outsiders understood, they were often astounded that what was being done was even technically possible.)<br />
<br />
Eventually RBC developed a software program that neutralized the high-frequency traders by sending orders to the various exchanges with time lags so that all the orders would arrive at the various exchanges simultaneously. This prevented the high-frequency traders from using their order information on one exchange to exploit them on other exchanges.<br />
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After the reader discovers that the markets are rigged, an expected reaction would be that the government needs to regulate more. Lewis dismisses this idea using one of the characters who researches scandals on Wall Street and finds "[e]very systemic market injustice arose from some loophole in a regulation created to correct some prior injustice....[T]he regulators might solve the narrow problem of front-running in the stock market by high-frequency traders, but whatever they did to solve the problem would create yet another opportunity for financial intermediaries to make money at the expense of investors." (p. 101) The current regulation that was being exploited was Regulation National Market System, passed by the SEC in 2005 and implemented in 2007 in response to abuses that surfaced in 2004.<br />
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The last part of the book describes the efforts of Brad Katsuyama to establish a new exchange, the IEX, that would be fair and constructed in a way that would not be gamed by the high-frequency traders. His main obstacle was that so many of the big players had a stake in the existing system. The exchanges made lots of money by selling fast access to the high-frequency traders. The big banks and brokerages with access to the markets made money both by establishing their own proprietary trading areas, called dark pools, and also by selling information to the high-frequency traders. However, large investors such as mutual funds were eager for this kind of exchange and by the end of the book the IEX has been launched. It had even attracted favorable attention from Goldman Sachs, where some executives thought a fairer market was in their long-term interest and who believed they could never really compete with the high-frequency traders.<br />
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Why does it all matter? The electronic markets in theory should be matching buyers and sellers so that all the benefits of the exchange accrue to them. However, the high-frequency traders have found a way to get between the buyers and sellers, extracting a bit of the gains for themselves while providing no benefit to anyone else. This is a tax on capital that takes billions of dollars from the financial markets and thereby make them less efficient in allocating capital to its most productive uses. (On the other hand, some of the fees to banks and exchanges may allow them to keep user fees lower than they would otherwise be, so some the money extracted from the investors may provide benefits.)<br />
<br />
I highly recommend the book. Michael Lewis is an unique talent, one who can clearly explain difficult economic and financial concepts in an entertaining and engaging way.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-7971500143453761192014-07-21T09:04:00.001-07:002014-07-21T09:04:13.617-07:00Cognitive limitations<a href="http://www.ravishly.com/ladies-we-love/christina-sommers-author-who-stole-feminism">Cbristina Sommers </a>on the limits of reason:<br />
<br />
<blockquote class="tr_bq">
I only recently came to appreciate the limited power of logic, reason and evidence to change minds. Most of us, whether we know it or not, are driven by emotion and group loyalty. Cognitive scientists have long known about a phenomenon called “motivated reasoning”—we tend to use logic and reason, not to discover what we believe, but to confirm what we already think we know. Instead of changing our minds in the face of contradictory evidence, we are more likely to seize on rationalizations for what we already believe. I see this tendency in myself once in a while and try mightily to resist it.</blockquote>
Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-58268026576884979692014-05-25T19:59:00.002-07:002014-05-25T19:59:38.590-07:00Multiplying by drawing linesHere is a <a href="http://youtu.be/0SZw8jpfAk0">cute little trick</a> to multiply without knowing the multiplication tables.<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/0SZw8jpfAk0" width="560"></iframe>Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-37884424064560979642014-05-05T10:00:00.002-07:002014-05-05T10:00:16.613-07:00The dangers of scientific consensusFrom the Wall Street Journal, <a href="http://online.wsj.com/news/articles/SB10001424052702303678404579533760760481486">"The Questionable Link Between Saturated Fat and Heart Disease"</a>:<br />
<blockquote class="tr_bq" style="border: 0px; color: #333333; font-family: Arial, Helvetica, sans-serif; font-size: 15px; line-height: 1.4em; margin-bottom: 1em; outline: 0px; padding: 0px; vertical-align: baseline;">
Our half-century effort to cut back on the consumption of meat, eggs and whole-fat dairy has a tragic quality. More than a billion dollars have been spent trying to prove Ancel Keys's hypothesis, but evidence of its benefits has never been produced. It is time to put the saturated-fat hypothesis to bed and to move on to test other possible culprits for our nation's health woes.</blockquote>
Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-1844923138692190052014-05-04T07:47:00.000-07:002014-05-04T07:47:29.870-07:00Interesting articles for various reasonsA few articles over the past few months that in the past I would have commented on:<br />
<br />
<a href="http://blogs.telegraph.co.uk/finance/andrewlilico/100027182/inequality-isnt-a-problem-its-a-driver-of-progress/">http://blogs.telegraph.co.uk/finance/andrewlilico/100027182/inequality-isnt-a-problem-its-a-driver-of-progress/</a><br />
<br />
<a href="http://www.coyoteblog.com/coyote_blog/2014/04/ideological-turing-tests-climate-and-minimum-wage.html">http://www.coyoteblog.com/coyote_blog/2014/04/ideological-turing-tests-climate-and-minimum-wage.html</a><br />
<br />
<a href="http://online.wsj.com/news/articles/SB10001424052702303910404579489692798833528?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702303910404579489692798833528.html">http://online.wsj.com/news/articles/SB10001424052702303910404579489692798833528?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702303910404579489692798833528.html</a><br />
<br />
And this group of four:<br />
<br />
<a href="http://www.the-american-interest.com/articles/2014/03/17/the-rise-of-secular-religion/">http://www.the-american-interest.com/articles/2014/03/17/the-rise-of-secular-religion/</a><br />
<br />
<a href="http://minx.cc/?post=347499">http://minx.cc/?post=347499</a><br />
<br />
<a href="http://www.thisviewoflife.com/index.php/magazine/articles/why-sam-harris-is-unlikely-to-change-his-mind10">http://www.thisviewoflife.com/index.php/magazine/articles/why-sam-harris-is-unlikely-to-change-his-mind10</a><br />
<br />
<a href="http://sultanknish.blogspot.com/2014/02/the-secular-religion-of-left.html">http://sultanknish.blogspot.com/2014/02/the-secular-religion-of-left.html</a><br />
<br />Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-86668274004147878532014-03-28T11:09:00.001-07:002014-03-28T11:09:20.130-07:00Do it for Denmark<a href="http://youtu.be/vrO3TfJc9Qw">Denmark is worried</a> about its fertility rate, though at 1.73 it is huge <a href="https://www.cia.gov/library/publications/the-world-factbook/rankorder/2127rank.html">compared to</a> Poland (1.33) the Ukraine (1.30), South Korea (1.25), or Singapore (0.80). It never ceases to amaze me how little people know about fertility rates and what the implications of those rates are, but it is a narrative that the mainstream press suppresses. <br />
<br />
<iframe width="640" height="360" src="//www.youtube.com/embed/vrO3TfJc9Qw?rel=0" frameborder="0" allowfullscreen></iframe>Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-6332579599215267712014-03-09T17:16:00.000-07:002014-03-09T17:16:56.631-07:00Trickle down biologyThough few <a href="http://www.wimp.com/wolvesrivers/">in number</a>, they have an effect that affects the whole system for the better.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-14299129585173075112014-02-08T19:27:00.002-08:002014-02-08T19:27:28.903-08:00People still respond to incentives<a href="http://online.wsj.com/news/articles/SB10001424052702304680904579367143880532248?mod=djemMER_h&mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304680904579367143880532248.html%3Fmod%3DdjemMER_h">Casey Mulligan is surprised</a> that some economists seem to have forgotten that people respond to incentives, that if you penalize work, you get less of it.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-8725498946249268842014-02-03T10:02:00.000-08:002014-02-03T10:02:05.574-08:00Socialism to our southThe <a href="http://www.washingtonpost.com/world/at-markets-chavez-successor-falls-short/2014/01/31/ac85c62a-8518-11e3-a273-6ffd9cf9f4ba_story.html">results of socialism</a> in Venezuela are what anyone who understands economics expects, but some citizens still prefer to believe that bad results must come for bad people:<br />
<br />
<blockquote class="tr_bq">
Each day the arrival of a new item at Excelsior Gama brought
Venezuelans flooding into the store: for flour, beef, sugar. Store
employees and security guards helped themselves to the goods first,
clogging the checkout lines, and then had to barricade the doors to hold
back the surge at the entrance.<br />
“The store owners are doing this
on purpose, to increase sales,” said Marjorie Urdaneta, a government
supporter who said she believes Maduro when he accuses businesses of
colluding with foreign powers to wage “economic war” against him.<br />
“He should tell the stores: Make these items available — or else,” she said.</blockquote>
Socialism is always in trouble because of sabotage--a favorite theme in the USSR and China under Mao. It is unfortunate that some people cannot understand that people respond to incentives.<br />
<blockquote class="tr_bq">
Most Venezuelans are too busy just trying to secure the basics.
Residents from the country’s interior say the shortages are even worse
outside the capital.<br />
“There’s nothing to buy where we live,” said
Maria Valencia, a preschool teacher from the oil-producing hub of
Maracaibo, near Venezuela’s western border, while shopping at a
government-run Bicentenario supermarket where products sold by recently
nationalized companies carried little heart symbols and the phrase “Made
in Socialism.”<br />
Valencia and three family members had filled their
cart with corn oil, four bottles each, the maximum. “This stuff is
gold,” she said.<br />
Shoppers here were more inclined to blame the
scarcities on badly behaved countrymen whom they said were trying to
profit from the situation.</blockquote>
And while the government is trying to run the economy, it is not doing a very good job with a basic function of government:<br />
<br />
<blockquote class="tr_bq">
But if the president’s fiscal policies are anything like his response to rising crime, the country looks to be in trouble.<br />
The Jan. 6 <a data-xslt="_http" href="http://www.washingtonpost.com/world/venezuela-outraged-by-murder-of-a-former-beauty-queen/2014/01/08/622d6ad6-78a9-11e3-a647-a19deaf575b3_story.html">roadside killing </a>of
former Miss Venezuela Monica Spear in a botched robbery attempt jolted a
country long-numbed by one of the world’s highest homicide rates and
near-total criminal impunity. </blockquote>
<br />
In democracy people get the kind of government that they deserve, which may be very different from the kind of government that they want. <br />
<br />
Read the whole thing in the Washington Posts <a href="http://www.washingtonpost.com/world/at-markets-chavez-successor-falls-short/2014/01/31/ac85c62a-8518-11e3-a273-6ffd9cf9f4ba_story.html">here</a>.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-65836119753072607032014-01-08T13:40:00.002-08:002014-01-08T19:21:16.991-08:00AntepenultimateI have always liked the word "penultimate" because it seems so pretentious. Why not simply say "next-to-last"? But today I found an even more pretentious word: "antepenultimate". It means "next to next to last" or "two before the last." Now I just have to figure out where I can use it.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-35267931376923279702013-12-01T10:45:00.002-08:002013-12-01T10:45:11.916-08:00Shakeup at the Minneapolis FedThe Federal Reserve Bank of Minneapolis may be the smallest of the 12 Reserve Banks, but in recent years it has earned the reputation of having one of the best research departments. <a href="http://www.startribune.com/business/232695051.html?page=1&c=y">That may be changing</a>.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-19611664386765627352013-10-18T17:34:00.000-07:002013-10-18T17:34:07.545-07:00Reflections on What to Expect When No One's ExpectingPublished in 1968, Paul Ehrlich's <i>The Population Bomb</i> reignited Malthusian fears about the imminent collapse of civilization due to overpopulation. Selling over two million copies, it shaped perceptions for the past half century. Despite the fact that its alarmist predictions have been falsified by history, in the popular mind the threat of overpopulation still looms. <br />
<br />
Jonathan Last has a very different message in <i><a href="http://www.amazon.com/gp/product/1594036411/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=1594036411&linkCode=as2&tag=ingrimayne-20">What to Expect When No One's Expecting: America's Coming Demographic Disaster</a></i><img alt="" border="0" class="tbcslmmfmfoygksazgqc" height="1" src="http://ir-na.amazon-adsystem.com/e/ir?t=ingrimayne-20&l=as2&o=1&a=1594036411" style="border: none !important; margin: 0px !important;" width="1" />. He dismisses <i>The Population Bomb</i> as "one of the most spectacularly foolish books ever written." His concern is how nations will cope with shrinking populations. Throughout the developed world and even in some of the developing world, fertility rates have fallen below replacement. Women are averaging less than two babies in Europe, the Far East, and even parts of South American. Only in Africa and in some parts of the middle east are fertility rates still high, and even many of these have fallen.<br />
<br />
Last faces several barriers to his message. First, many people do not understand what the fertility rate measures. The media focuses on crude birth rate or population growth, not fertility rates, and even when they discuss fertility rates, they often do not use that term. The fertility rate is an estimate of the average number of children a cohort of women will bear during their reproductive years. Because some children die before they reach adulthood, the replacement level of the fertility rate is usually given as 2.1, though it will be higher in poor countries with high child mortality. If a country maintains its fertility rate at the replacement level, it will eventually, with a long lag, stabilize population and have zero population growth. That lag is the second barrier to his message.<br />
<br />
The relationship between fertility rates and population growth is not straightforward. Many people do not understand how population can continue to grow if the fertility rate is below replacement. To answer that question requires a bit of mathematical reasoning and math is hard for most people. Ignoring immigration and emigration, population increases when the number of births exceed the number of deaths. The people dying are mostly old people. The fertility rate tells us nothing about what old people are doing; it tells us what young women are doing. In a population that has had a high fertility rate, the number of old people will be much smaller than the number of young people. If the young people start having few babies with a fertility rate below replacement, the number of births may easily exceed the number of deaths because the old generation is small relative to the population.<br />
<br />
However, if the fertility rate stays below replacement long enough, the age structure of the population changes and the old generation becomes large relative to the young generation. When that happens, deaths may exceed births even if the young people start having lots of babies. A change in fertility rates does not have its full effects on population growth or decline immediately, but only after a long lag. There are several countries that have had low fertility rates for so long that their populations are now declining. Japan, Germany, and Russia are examples. In the not too distant future much of Europe will join their ranks.<br />
<br />
Third, some people who understand that population expansion is not inevitable and that many parts of the world will in coming years will face a population decline maintain that the decline will be a good thing because there are too many people today. This position focuses on the level of population and is concerned with what level of population is ideal. It ignores that the rate of change in population, regardless of what the level is, has effects that may be good or bad. Last is not concerned with the issues surrounding the level of population. He is concerned only with the issues surrounding the change. He notes that a declining population creates some serious problems for a society and that we have limited experience in anticipating or dealing with those problems.<br />
<br />
Chief among those problems is providing support for the elderly. All societies must deal with this problem in some way. In traditional societies children take care of their parents, so in these societies to be childless is a curse. In industrial societies a combination of financial markets and government transfer programs have relieved children from the task of caring for their parents but do not relieve the young from the task of supporting the old. Resources must be transferred from the young to the old, either voluntarily via financial markets or by coercion through government transfers. What we do not know is how societies will cope as the ratio of young to old decreases to levels as low as two to one. The change will affect savings and investment, innovation, and the military power a nation can project.<br />
<br />
Last is not an expert in demography. He is a writer who is summarizing the work of others and presenting it in an easy-to-digest form for a popular audience. Demography is a story of numbers, and to enliven the book Last mixes in observations of American culture and stories. For example, Margaret Sanger was an eugenist whose goal was to stop the poor from breeding. She teamed up with a woman who had control of the fortune made by the founder of International Harvester to fund research to develop the birth control pill. The research was successful but had consequences quite different from what Sanger envisioned. The pill seems to have depressed births among the prosperous and educated more than it has depressed births among the poor and uneducated. (The extent to which the pill contributed to other changes such as increased premarital sex and cohabitation, increased age at first marriage, and a higher divorce rate remains uncertain.)<br />
<br />
Fertility rates have fallen to levels that no one expected back when Ehrlich was renewing Malthusian fears. In Singapore, for example, the average number of babies being born is only a little more than one per young woman. The government has tried a variety of policies to raise that level, but without success. Last points out throughout his book that in the contemporary world there are no economic benefits to having children but there are substantial costs. It is therefore not surprising that so many people opt for few or no children. Last sees no reason for low fertility rates to rise, though most estimates of what the population will be in 50 or 100 years from now assume that they bounce back to replacement levels. Eventually fertility rates will rise, but only time will reveal when and why.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-53432995071214526782013-10-10T05:15:00.000-07:002013-10-10T05:15:32.925-07:00Cut the meat, save the fat<a href="http://townhall.com/columnists/thomassowell/2013/03/05/budget-politics-n1525553">Thomas Sowell describes the perverse incentives</a> of government bureaucrats facing budget cuts <a href="http://ingrimayne.com/econ/title_page/answers/answer_key_13_14.htm">much better than I can</a>:<br />
<br />
<blockquote class="tr_bq">
Back in my teaching days, many years ago, one of the things I liked to
ask the class to consider was this: Imagine a government agency with
only two tasks: (1) building statues of Benedict Arnold and (2)
providing life-saving medications to children. If this agency's budget
were cut, what would it do? </blockquote>
<blockquote class="tr_bq">
The answer, of course, is that it
would cut back on the medications for children. Why? Because that would
be what was most likely to get the budget cuts restored. If they cut
back on building statues of Benedict Arnold, people might ask why they
were building statues of Benedict Arnold in the first place.</blockquote>
Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-31439088515453909532013-08-19T08:16:00.000-07:002013-08-19T08:16:20.833-07:00Tombstone: The Great Chinese FamineWhen I attended the University of Wisconsin-Madison from 1968 to 1970, I frequently encountered radical leftists who regarded Mao Zedong (or Mao Tse-tung as he was known in those days) as a hero, a great leader with a great intellect. They did not know and would not have believed that a decade earlier Mao's Great Leap Forward had caused the starvation of millions of Chinese peasants. The exact number will never be known, but estimates range from 17 million to more than 50 million.<br />
<br />
<i><a href="http://www.amazon.com/gp/product/0374277931/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=0374277931&linkCode=as2&tag=ingrimayne-20">Tombstone: The Great Chinese Famine, 1958-1962</a><img alt="" border="0" class="jysjnjqikcgrwucsieds" height="1" src="http://ir-na.amazon-adsystem.com/e/ir?t=ingrimayne-20&l=as2&o=1&a=0374277931" style="border: none !important; margin: 0px !important;" width="1" />
</i> by Yang Jisheng is a comprehensive examination of this disaster. The author was in high school when he received word that his father was dying of starvation back in his village. He rushed home but found that his father was too far gone to be helped. It would be years before the author came to understand that his father was one of millions of people who died in an unnecessary man-made disaster. His doubts about the infallibility of the Communist leadership began to form during the Cultural Revolution when many high-ranking officials were accused of corruption. Those doubts matured into skepticism when Yang became a reporter and learned how news was manipulated to indoctrinate the masses. Eventually he decided he needed to uncover the truth. His quest for truth led to this book. <br />
<br />
The English version of <i>Tombstone</i> is about half as long as the original Chinese version, published in Hong Kong in 2008 and not available in Mainland China, and it also rearranges the material. Most of the detailed, province-by-province accounts of the famine have been eliminated. Remaining are accounts from a few provinces that were especially hard hit and the chapters that analyze the reasons for this disaster. The book would not have been possible if there were not high-level party officials who also believed that the truth needed to be recorded and preserved. <br />
<br />
Unlike Chinese famines in the past, this famine was not caused by flooding, drought, or any other natural calamity. It was caused by policies that Mao Zedong set and kept in place. Mao did not intend to starve millions of people. His goal was to stay in power as the new emperor of China and to use his power to establish the utopia that is the goal of faithful Marxists. His utopian beliefs would not have had disastrous consequences if the triumph of the Chinese Communists in 1949 had not ushered in a totalitarian government.<br />
<br />
China has a long tradition of authoritarian government and the communists adopted that authoritarianism despite their promises that they would be democratic. Society was organized as a pyramid, with each level a dictator to those below and a slave to those above. The addition of the secular religion of Marxism allowed the Chinese Communists to take the authoritarian system of the emperors to an extreme. Marxism, despite its rhetoric of egalitarianism, is an elitist belief system that confers absolute power on a privileged few. The faithful believe themselves justified in depriving everyone else of freedom and forcing them to blindly follow orders from above because these measures enable the arrival of heaven on earth.<br />
<br />
Yang notes that the communist party relied on "'two barrels:' the gun barrel and the pen barrel; seizing and ruling its domaine relied on both." (p 492) The party controlled thought because it controlled all sources of information and also because it punished any deviation from approved thought with severe consequences. When the Communist Party gained control of China, it executed over 700,000 people (p 476) and executions continued after its power was consolidated as a means of control. Although this system of control, reaching down to shape the thoughts of peasants, was impressive, it had two related shortcomings.<br />
<br />
Each level of the hierarchy needed to appease the level above it. Failure to meet goals could bring charges of sabotage or right-wing deviation, so there was an incentive to exaggerate what was possible and what had been accomplished. Because telling the truth about production was dangerous, the entire system ended up being based on lies and deceit. Those at the top did not have a clear idea of what was happening at the bottom.<br />
<br />
The lack of honesty contributed to a second problem, the lack of corrective mechanisms. One of the advantages of free markets is that they provide powerful correction to those who make products that people do not want. A democracy also has corrective forces, though they are weaker. The citizens can and often do vote incompetent and corrupt officials from office. However, "[i]n trying to control the ears and eyes of ordinary people, the supreme ruler ends up blocking his own ears and eyes" (p 496) and "[i]n a monarchal political system, the supreme ruler hears only voices that conform to his own will." (p 497)<br />
<br />
In the Great Leap Forward Mao intended to squeeze peasants to support industrialization. The government based extraction on reported harvests, but because the reports were exaggerated to curry favor with those above, the level of extraction was so high that deaths from starvation began in 1958. The author argues that there was a chance to correct the mistake at the Lushan Conference in July and August of 1959. It was missed when Mao used the conference to attack those who voiced concern over the way that the Great Leap Forward was proceeding, effectively prohibiting true reporting of the conditions in the countryside. As a result, millions more starved from 1959 to 1962.<br />
<br />
Mao was blinded not only by bad information but also by ideology. In socialist and Marxist thought private property establishes and perpetuates inequality. Unacknowledged is the role property rights have in overcoming the problem of common ownership of scarce resources. Private property is a mechanism that makes people recognize costs of their actions. Mao enthusiastically supported the suppression of household food preparation in favor of communal kitchens because he thought there would be economies of scale and that large-scale food production would release people to do other things. He never anticipated that people given free food would overconsume, causing many kitchens to run out of food and to shut down in the winter, leaving people hungry. When households prepare their own food they consider that a consequence of eating now may mean less later. With a communal food supply, what one person consumes now has minimal effect on what that person will have later. <br />
<br />
Similarly, when cultivating their own land, peasants have a strong incentive to make smart decisions because mistakes often have dire consequences. When decisions about what and how to produce were made high in the hierarchy, the consequences of mistakes were not borne by decision makers but by the peasants. The problem of common ownership is that people are not accountable for the consequences of their actions and as a result there is no barrier to actions that are socially destructive. Mao's Marxist ideology never let him understand why trying to abolish private property in favor of communal ownership led to repeated failures. Fortunately, reality overcame ideology for some in the leadership so that reform was possible after Mao's death.<br />
<br />
Yang estimates that at least 36 million people starved to death from 1958 to 1962. In addition, he estimates that the shortfall in births was about 40 million; lack of food reduced births because a large number of women stopped ovulating. However, when the policies of the Great Leap Forward were relaxed after 1962 and food availability rose, births soared and made up for that shortfall. <br />
<br />
Eventually knowledge of the scale of this disaster did reach the top. Several high officials were "charged in 1961 with directing each province to compile data on food supply and demographics. The data indicated a population loss of tens of millions. This information was reported to only two people: Premier Zhou Enlai and Mao Zedong. After reading the report, the premier contacted Zhou Boping and told him to destroy it immediately and make sure that no one else saw it." (p 406)<br />
<br />
The author named the book <i>Tombstone</i> for four reasons. He wanted it to be a memorial for his father who died in the famine, for the 36 million others who died, and for himself. He also wanted it to mark the grave of the system that brought about this great tragedy.<br />
<i><br />Tombstone</i> is an important documentation of one of the great calamities of 20th century socialism. It gives details and names names. However, there are so many names in the book that the reader can not make sense of them all. The book describes an event so horrific and large that it is beyond human comprehension. Books that put the event into story form, focusing on how it affected a small group of people, will have a larger audience and a greater impact. There is truth to the quote, often attributed to Stalin, that "the death of one man is a tragedy, the death of millions is a statistic."<br />
<br />
<a href="http://online.wsj.com/article/SB10000872396390444180004578015170039623486.html">Here</a> is the review of the book in the Wall Street Journal and <a href="http://www.nybooks.com/articles/archives/2012/nov/22/china-worse-you-ever-imagined/?pagination=false">here</a> is one from the New York Review of Books.Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-24532856642395384522013-08-02T16:40:00.001-07:002013-08-02T16:41:22.079-07:00Your help is hurting<br />
From an <a href="http://www.forbes.com/sites/jerrybowyer/2013/07/30/your-help-is-hurting-how-church-foreign-aid-programs-make-things-worse/">interview in Forbes</a>, "Your Help Is Hurting: How Church Foreign Aid Programs Make Things Worse:"<br />
<blockquote class="tr_bq">
There’s an author Bob Lupton, who really nails it when he says that when
he gave something the first time, there was gratitude; and when he gave
something a second time to that same community, there was anticipation;
the third time, there was expectation; the fourth time, there was
entitlement; and the fifth time, there was dependency. That is what
we’ve all experienced when we’ve wanted to do good. Something changes
the more we just give hand-out after hand-out. Something that is
designed to be a help actually causes harm.</blockquote>
Read the whole thing. Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com0tag:blogger.com,1999:blog-1716768851867657552.post-27819109640966553692013-07-21T20:20:00.000-07:002013-07-22T08:56:14.793-07:00Why Nations Fail: A ReviewIn <i><a href="http://www.amazon.com/gp/product/0307719219/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=0307719219&linkCode=as2&tag=ingrimayne-20">Why Nations Fail: The Origins of Power, Prosperity, and Poverty</a><img alt="" border="0" class="phelwqcyqozquencvpps" height="1" src="http://ir-na.amazon-adsystem.com/e/ir?t=ingrimayne-20&l=as2&o=1&a=0307719219" style="border: none !important; margin: 0px !important;" width="1" /></i> Daron Acemoglu and James Robinson argue that elites promote stasis because change can undermine their positions in society. Elites uses their positions to channel wealth and income to themselves and protect those positions by erecting political and economic structures that keep others from prospering. Acemoglu and Robinson call these structures extractive institutions. In contrast, sustained economic growth must allow the creative destruction that flows from technological change. Only those political and economic institutions that allow participation by outsiders generate the innovations that create sustained economic growth. Acemoglu and Robinson call these structures inclusive institutions. Both extractive and inclusive institutions tend to create forces that perpetuate themselves, which is why it is so hard for poor countries, those with the most extractive institutions, to break away from the status quo and begin the process of growth. The bulk of the book consists of examples that develop and illustrate this theme.<br />
<br />
An attraction of this thesis is that it is an extension of the most basic idea in economics, that people respond to incentives. When people have the opportunity to structure incentives to favor themselves, they usually will do so, which is why countries impoverished by elites are so resistant to economic growth. When one tyrant is overthrown, the usurper is usually just another tyrant who wants to use the system to enrich himself and his cronies. The thesis of this book is quite similar to that developed by Hernando De Soto in <i><a href="http://www.amazon.com/gp/product/0465016154/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=0465016154&linkCode=as2&tag=ingrimayne-20">The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else</a></i><img alt="" border="0" class="phelwqcyqozquencvpps" height="1" src="http://ir-na.amazon-adsystem.com/e/ir?t=ingrimayne-20&l=as2&o=1&a=0465016154" style="border: none !important; margin: 0px !important;" width="1" />, yet De Soto is not included in the bibliography of sources. <br />
<br />
The authors dismiss culture as a factor that explains differences in income level. They point out that the North and South Koreans had similar cultures, yet have had completely different growth paths. Yet within countries different cultural groups can have very different levels of success, and sometimes the successful groups are subject to discrimination. Perhaps the authors should have argued that cultural differences are secondary in explaining what happens to different nation states. Culture is a nebulous concept that is impossible to measure with any precision and thus does not fit readily into economic discussions. But the same can be said for the notion of institutions at the basis of Acemoglu and Robinson's argument.<br />
<br />
One of the changes that opened up the economic system of the U.S. was the reforming of laws of incorporation that took place before the Civil War. Originally the granting of corporate charters was tightly controlled by the political process, creating the temptation to create economic rents. The reform of the process took politics out of the process, allowing anyone meeting a set of requirements to get a corporate charter. This change removed a major hurdle in organizing large businesses, and Acemoglu and Robinson completely ignore this development even though it fits into their narrative. (A book with a similar emphasis on the importance of institutions, <i><a href="http://www.amazon.com/gp/product/0804756937/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=0804756937&linkCode=as2&tag=ingrimayne-20">Political Institutions and Financial Development</a></i><img alt="" border="0" class="phelwqcyqozquencvpps" height="1" src="http://ir-na.amazon-adsystem.com/e/ir?t=ingrimayne-20&l=as2&o=1&a=0804756937" style="border: none !important; margin: 0px !important;" width="1" />, edited by Stephen Haber, Douglass C. North, and Barry R. Weingast, has a paper that notes that between 1842 and 1852 eleven states rewrote their constitutions to take the power of chartering corporations out of politics.)<br />
<br />
Instead they highlight the anti-trust attack on the so-called robber barons of the late 19th century as a victory for inclusive institutions. They seem unaware that the pejorative term "robber baron" was popularized not in the 19th century but only in the 1930s or that the "monopolists" owned much of their success to exploiting the economies of scale that new technologies brought. The people who most objected to the so-called robber barons were not those who bought from them but those who could not compete with them, the rivals who were the victims of the creative destruction that the Carnegies and Rockefellers of the era unleashed.<br />
<br />
Chapter 11 concludes with a section called, "Positive Feedback and Virtuous Cycles." Chapter 12 concludes with a section called "Negative Feedback and Vicious Cycles." Economists do not give the concept of feedback nearly enough emphasis, so perhaps the authors were unaware of what the definitions of positive and negative feedback are. Positive feedback tends to amplifying results while negative feedback dampens or stabilizes things. Hence, both vicious cycles and virtuous cycles result from positive feedback. The authors could have argued that negative feedback creates a stagnation or poverty trap, but a trap is not the same thing as a vicious cycle.<br />
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Acemoglu and Robinson give Venice as an example of a state that developed an inclusionary institution, the <i>commenda</i>, which set it on the road to growth and prosperity in ninth and tenth centuries. The <i>commenda</i> was a risk sharing agreement for trade missions that gave ambitious and talented outsiders a chance to prosper. Eventually, early in the 14th century, the elites chose stagnation by closing avenues of upward mobility. Although stagnation and decay are possible paths for today's developed nations, no attention is given to this topic. The omission may be because Acemoglu and Robinson are focused on why so many nations have failed to develop economically, and decay is best left for a different book (though they include one such book, Mancur Olson's <a href="http://www.amazon.com/gp/product/0300030797/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=0300030797&linkCode=as2&tag=ingrimayne-20">The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities</a><img alt="" border="0" class="phelwqcyqozquencvpps" height="1" src="http://ir-na.amazon-adsystem.com/e/ir?t=ingrimayne-20&l=as2&o=1&a=0300030797" style="border: none !important; margin: 0px !important;" width="1" />, in the bibliography). Or perhaps they do not consider decline an important threat; their emphasis on the virtuous cycle of inclusive institutions supports this possibility. <br />
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One of the concepts that Acemoglu and Robinson stress is "contingent events," episodes that can break a pattern and send a nation down a path to different institutions. They repeatedly refer to the Glorious Revolution of 1688 as the event that changed the trajectory for England, leading to a process that generated ever more inclusive institutions. In the post-World-War-II era the world underwent massive decolonization, which provided a host of contingent events sending countries on new paths. In almost all of these cases the new regimes made their institutions more exclusive rather than more inclusive, further impoverishing their countries. Acemoglu and Robinson blame the exclusionary institutions that the colonizers left behind for today's poverty in Africa, Asia, and the Americas. What they do not explain is why independence led to more exclusionary institutions rather than more inclusionary institutions. <br />
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On page 389 they write, "It is impossible to understand many of the poorest regions of the world at the end of the twentieth century without understanding the new absolutism of the twentieth century: communism." The irony of communism and socialism is that although their rhetoric about equality suggests that they will usher in inclusive institutions, the nature of socialism requires that it be highly exclusionary. Acemoglu and Robinson spend few pages developing this idea despite their declaration of its importance.<br />
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In the final chapter Acemoglu and Robinson look at foreign aid and come to the same conclusion that <a href="http://www.amazon.com/gp/product/0262550423/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=0262550423&linkCode=as2&tag=ingrimayne-20">William Easterly</a><img alt="" border="0" class="phelwqcyqozquencvpps" height="1" src="http://ir-na.amazon-adsystem.com/e/ir?t=ingrimayne-20&l=as2&o=1&a=0262550423" style="border: none !important; margin: 0px !important;" width="1" />
found, that it can often be counterproductive, reinforcing the power of the elites to maintain the status quo. However, they conclude that foreign aid is here to stay not because it is effective but because "many Western nations feel guilt and unease about the economic and humanitarian disasters around the world, foreign aid makes them believe that something is being done to combat the problems." (p 454) They also make the case that though China has been growing rapidly for the past few decades, that growth will soon slow down dramatically. They argue that some growth is possible under extractive institutions, and point to the USSR as an example. By massively investing in technology that had been developed by others, the USSR grew rapidly until the 1970s. At that point it had exploited what was possible with that strategy. For growth to continue, they would have had to allow creative destruction, but authoritarian and totalitarian regimes abhor creative destruction. Acemoglu and Robinson see the same process playing out in China. There is no rule of law, property rights are insecure, and the political trumps the economic. What is possible given their institutions is limited.<br />
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Acemoglu and Robinson end the book with a story from Peru where Fujimori and his crew tried to ensure their dominance. They paid off various officials and judges, but the really big payments were to the press. They recognized the key to control was control of the press--nothing else really mattered much. If Acemoglu and Robinson had not dismissed culture as unimportant, perhaps they might have played with the importance of the media in shaping culture, which in turn can limit what elites can do in the political sphere.<br />
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Update: <a href="http://online.wsj.com/article/SB10001424052702304724404577293714016708378.html">Here</a> is William Easterly's review of the book in the Wall Street Journal. Dessert Survivorhttp://www.blogger.com/profile/04616064444288249273noreply@blogger.com1