Outsourcing and the Campaign

I've had a little time to reflect on the Bain-outsourcing-Romney stuff. So here are a couple of observations, which I share with the Free Exchange editors at the Economist.
(1) Outsourcing is good on the net, not just for the country receiving the investment, or even some vague global sense. It is welfare-improving for the US in the aggregate.
(2) Outsourcing can be pareto-improving, meaning that not only does it increase income, wealth and efficiency on average, but it is possible to ensure that no one is worse off.
Point (1) implies that, even if you support President Obama, the criticism of outsourcing by itself is misplaced. That includes this criticism by Paul Krugman. We should be outsourcing when it is profitable to do so.
Point (2) is tougher. Basically, it qualifies the political feasibility of (1) by implying that, in order to bring everyone on board with free trade, outsourcing, etc., you need pretty extensive structural adjustment assistance programs also known as the Welfare State. Here, as the Economist correctly points out, we could learn a little something from the 1997 incarnation of Professor Krugman when he says that voters aren't nuanced enough in their understanding of trade and public policy to grasp this subtlety - or care. They know jobs are gone, and US companies are growing operations in China. They win, I lose.
The Economist article points out that Obama could come out with a more nuanced and correct argument. But really, either candidate could take up this mantle and make it part of their platform without abandoning their core values. Mr. Romney, for his part could say, "yes, I am for free markets and outsourcing, and the fact that it puts some folks out of work only highlights the need to reform existing welfare programs so they help people who really want to work." Mr. Obama, instead of spewing protectionist garbage could say, "see, people are hurt by some aspects of free markets and we need social programs like my health care law to make markets work better for everyone" (he could even throw in some of his "shared prosperity" catchphrases).
But neither candidate is doing this. Obama is pretending to be protectionist (when we all know he won't govern that way); Romney is acting like the attacks are simply unfair, which doesn't seem to help much - do we really want a crybaby for a President? Obama's strategy, sadly, is the politically effective one, and I expect to see much more of it through November.

Paul Romer on Ending Poverty

I'm less bullish on charter cities than some of my other colleagues in institutional economics. It seems like institutional arrangements would be sensitive to the prevailing local relative prices and preexisting distribution of property rights (a la North, 1981).

Links

Favorite shows by political persuasion (Entertainment Weekly). A little surprised R's dislike South Park so. It's pretty strongly libertarian, but I guess Jesus trumps liberty.
Job market advice for academics from UW (Econbrowser).
Moneyball (Grantland). Maybe they shouldn't of published all their secrets.
Higher speed limits? Probably not (MR). The first comment is amusing, albeit not very aware of forensic economics.
The video game business (Economist). I suspect gaming has been profitable through the recession because it is an inferior good.
A couple of more serious links on political unrest, recessions and inequality (Economist), and the impacts of offshoring on inequality and education (VoxEU).

Higher Top Tax Rates = Higher Productivity?

From Piketty, Saez, and Stantcheva, via VoxEU:

...while standard economic models assume that pay reflects productivity, ...top earners might be able to partly set their own pay by bargaining harder or influencing compensation committees. Naturally, the incentives for such ‘rent-seeking’ are much stronger when top tax rates are low.... increases in top 1% incomes now come at the expense of the remaining 99%.
...there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s.

Of course, raising income taxes on the rich might lead to more income being diverted into stock options and capital gains, but would that be a bad thing? Wouldn't that increase total investment and strengthen incentives for managers?

Democracy and Performance

Does regime type affect development or does development affect regime type? I'm more in the latter camp. Democratizations that preceded the development of economic institutions and economic development in Eastern Europe since 1990 have been fragile.

Republican Tax Increases

Alex Tabarrok is on the Republicans today for wanting to increase taxes. I'm not in full agreement with him about tax increases in general (he thinks they should not be increased in general, and that less government and low taxes are roughly synonymous), but I wholeheartedly agree with the notion that the temporary payroll tax cuts proposed by Obama should not be allowed to expire.
Some things that puzzle me about the issue:
1. Payroll taxes are regressive (they affect lower-income workers more). Why would they want to raise payroll taxes during economic recession?
2. Payroll taxes are a direct impediment to private sector hiring. Why would they want to raise payroll taxes during economic recession?
3. One could argue that they aren't technically raising taxes; they're allowing existing cuts to expire, but the Republicans have argued that allowing tax cuts for the rich to expire would themselves be tantamount to tax increases. Why would they want to raise payroll taxes during economic recession?
4. Republicans have argued against cap and trade (not technically a tax) as well as against carbon taxes, both of which have been supported by economists of both parties as good ways to deal with emissions (subsidies for clean technologies that Republicans support are not as good) on the grounds that any tax on energy would disproportionately hurt low-income working Americans. So.... why would they want to raise payroll taxes during economic recession?
Lining up for payroll tax increases also seems to be a political no-win for Republicans politically. It only seems to cement the narrative that they don't really care about the economy itself, but rather that they represent the rich (sometimes at the expense of the poor).

Some Random Links

An interesting short piece on the Isreli-Palestinian conflict (Haushofer, et al.)
A shamelessly self-interested link - somebody buy our house!
Is there a great divergence? (Rodrik)
Summary of an interview by Felix Simon with Larry Summers. Sentences to ponder:

The Treasury bond rate, Treasury note rate for ten years is 2.85 percent. Nobody is failing to invest because 2.85 percent is too much. They are failing to invest because there are no customers in their store. They are failing to invest because their factories are sitting empty. They are failing to innovate because they’re not sure how large the market for the product will be.

We don't need a C.E.O. A country is not a business. We need a policy expert. (Economix)

Economics for kids? (Freakonomics)

Banerjee on Poverty. (Economist)

Debt impacts of new policies GWB vs. BHO.

Some links on institutions and failed states

The long-lasting effects of corrupt institutional history. (Vox; more here)
Oil (resources?) and democracy. (Vox)
Failed states, poor institutions, and poverty. (Freakonomics)

Some Links, Including the Benefits of Holding "it" In

We make better long-run decisions on a full bladder. I can't wait to share this with my 75-minute classes. (APS)
Wage gaps and education. Some of this seems contrary to the recent evidence of stagnating education wage premia. (Krugman and Cowen - separately, of course!)
Given these structural changes, structural change is not welfare-neutral, even in the long run. (Rodrik)
Even (especially?) informed voters just really don't have beliefs about politics and policy that are consistent with reality. (Caplan)
Is controlled immigration better for welfare programs? This seems to assume a lot about the effectiveness of the controls.  (VOX)

Wage Struggles of Men (and a Link on Helping the Homeless)

Wage struggles of men? (Economix) Forgive me for being cynical, but looking at earnings per capita instead of earnings per worker and concluding that there is some sort of tide against men in the labor market seems hypocritical and sexist. A paper on the gender gap scarcely gets published unless it looks at female earnings on a per worker and per hour basis. This, of course is because many say there is "voluntary" selection into (and more importantly out of) the work force. How concerned should we be if more men are beginning to voluntarily select out of the work force (or begin working fewer hours), as more of their wives work full time? For thirty years women were told that their hours-worked choices were "voluntary" and the bar for showing evidence of a culture of discrimination was set almost impossibly high. Now that things are changing, why are we so quick to feel sorry for the men?

Direct transfers are often better than paternalistic in-kind ones (Jason Kottke)

Two Links on Pay Gaps

Seems the gender wage gap varies a lot by industry. Kind of mirrors some results in a working paper by Bang and Basu, 2010 (not Atin). If only the jerks fine and distinguished peers who review for journals would publish it. (Economix)

Public vs. private pay gap: it's not what you think, union-haters. (Econbrowser)

Some links, including some drunken research

I can imagine a situation where I might do research after a beer or two. All that would lead to is miscoding of data. These jackwagons made a breakthrough on superconductors.
Coffee in meetings: good for women, bad for men.
The costs of the war on drugs; cartel wars.
A couple of links on education and inequality.
Why seniors should favor immigration (legal or otherwise).
A couple of links on commodidty prices and growth: Econbrowser and The Economist.

Some Links on Trade, Immigration, and Income Distribution

(Unlike immigrants) will robots permanently drive down real wages? I agree that immigrants will not necessarily drive down wages, but am skeptical as to whether robots will. (Modeled Behavior)
Increasing opposition to immigration - is it inversely correlated with the actual immigrant population? (Cleveland Plain Dealer)
Baby steps to promote free trade in 2011. (WSJ)
Are the poor worse off when the rich are better off? Not always. (Economist)
Could you be richer if you really wanted to be and if so what does that do to income distribution at the macro level? (Gelman)
Giving back the Bush tax cuts for jobs and fairness (Freakonomics)

One good sentence on subsidies

From Free Exchange:

The upside to cash-benefits is that it forces policymakers to confront the trade-offs involved in delivering a certain subsidy and evaluate whether it makes sense.

Some Links

Some links I'm looking at for my classes.
Harry-Potter-nomics
(Macro-)education-omics

Remembering Paul Samuelson

Paul Samuelson left us today. He was a unique figure in the field because his work touched so many of the subfields: His mark can be found on microeconomic and macroeconomic theory, international trade, monetary economics, public finance, welfare economics, and economic pedagogy. He literally wrote the book on Economic His theorem with Wolfgang Stolper, the Stolper-Samuelson Theorem, explains which interest are likely to lose out in the opening to trade, even though there are net welfare gains at the national level.
He was sharp and witty to the end, evidenced here in an interview for the Atlantic Monthly where he makes keen insights into the financial crisis, recession, and fiscal response to it. He was an intellectual giant who will be sorely missed.

Survey Design Bias

Another example of biased survey design (here is a link to the full survey results).

Ninety-four percent of Obama voters correctly identified Palin as the candidate with a pregnant teenage daughter, 86% correctly identified Palin as the candidate associated with a $150,000 wardrobe purchased by her political party, and 81% chose McCain as the candidate who was unable to identify the number of houses he owned. When asked which candidate said they could "see Russia from their house," 87% chose Palin, although the quote actually is attributed to Saturday Night Live's Tina Fey during her portrayal of Palin during the campaign. An answer of "none" or "Palin" was counted as a correct answer on the test, given that the statement was associated with a characterization of Palin.
Obama voters did not fare nearly as well overall when asked to answer questions about statements or stories associated with Obama or Biden -- 83% failed to correctly answer that Obama had won his first election by getting all of his opponents removed from the ballot, and 88% did not correctly associate Obama with his statement that his energy policies would likely bankrupt the coal industry. Most (56%) were also not able to correctly answer that Obama started his political career at the home of two former members of the Weather Underground.

I'm thinking if Zogby had asked questions about Obama that were of a similar nature to the questions about McCain/Palin, they would have gotten more of their negatives correct. For example, "which candidate has been tied to radical preacher Jeremiah Wright?" or "which candidate has a muslim half-brother?" probably would have gotten a higher response rate, and in similar proportion to the McCain questions. On the other hand asking about McCain, "which candidate said that auto industry jobs aren't coming back?" would have gotten a lower response rate.
I also wonder what the survey results look like controlling for education and income. Democratic voters tend to be poorer and less educated (and not because liberal policies are dumb - they are just more compassionate towards people who are less well-off). That didn't make the report either, but it was part of the survey.

Power laws

Statistical power laws relating size to frequency, discussed by Aaron Clauset. Interestingly absent: wealth.

Tax Water?

Urban economists might think taxing land is the ideal way to manage urban growth; PK thinks it wouldn't raise enough $$. Should we tax water? Like a tax on land (not a tax on property, which would include the development of land), it would likely not distort investment. I'm concerned about the distributional consequences of a tax on a necessity that many people consume inelastically.

Why do Southern States have a Low HDI?

This was an interesting post on Andrew Gelman's stats blog. Basically, it talks about a new way of thinking about "human development" in the US by state, and compares it to an old way - the inverse of the distance to the Canadian border. What's about as interesting was this comment to a Catherine Campbell post at Economix:

Tom Friedman has often observed that poorly educated, unemployed youth in
Arab countries turned to fundamentalism. He blames the inefficient kleptocracies
that run these countries for these backward attitudes.
Is something like this
happening in the solid Republican states?

Hmmm.