Category: Economics

Italian Traditional Family Stunts Individual Enterprise

(p. 15) Hooper’s book, both sweeping in scope and generous with detail, makes persuasive arguments for how geography, history and tradition have shaped Italy and its citizens, for better and sometimes for worse. Roman Catholicism, for example, has indelibly conditioned Italian society, even as the Vatican’s restrictions are widely ignored. Catholicism’s great allowance for human frailty has translated into a great propensity for forgiveness, as evinced in the Italian justice system, but also resistance to the notion of accountability. It’s a word, Hooper adds, that has no counterpart in the Italian language.
. . .
There’s . . . mammismo, the propensity of young Italians to remain too closely tied to the maternal apron strings. But while “the traditional family has been at the root of much of what Italy has achieved,” Hooper writes, dependence on the family can infantilize, and lack of individual enterprise has held the country back. Indeed, various sections of Hooper’s book return to Italy’s economic decline and its underlying causes.
He notes that the paperwork and formalities of Italy’s cumbersome bureaucracy rob the average Italian of 20 days a year. And he wonders what other country could ever have had a Minister for Simplification to deal with its plethora of often conflicting laws and regulations.
Circumventing some of that bureaucracy partly answers another common question: Why is Italy so prone to corruption? After all, Italians are masters at sidestepping regulations, or, as the saying goes, “Fatta la legge, trovato l’inganno” (“Make the law, then find a way around it”). It’s no wonder foreign investment in Italy is so low.

For the full review, see:
LISABETTA POVOLEDO. “Under the Italian Sun.” The New York Times Book Review (Sun., March 1, 2015): 15.
(Note: ellipses added; italics in original.)
(Note: the online version of the review has the date FEB. 27, 2015, and has the title “‘The Italians,’ by John Hooper.”)

The book under review is:
Hooper, John. The Italians. New York: Viking, 2015.

For Some, Apprenticeships Could Be Less Expensive Path to Good Jobs

(p. 250) Melissa S. Kearney and Benjamin H. Harris have edited an e-book, Policies to Address Poverty in America, with 14 short essays on specific policies. As one example, Robert I. Lerman advocates “Expanding Apprenticeship Opportunities in the United States.” “Today apprentices make up only 0.2 percent of the U.S. labor force, far less than in Canada (2.2 percent), Britain (2.7 percent), and Australia and Germany
(3.7 percent). . . . While total annual government funding for apprenticeship in the United States is only about $100 to $400 per apprentice, federal, state, and local annual government spending per participant for two-year public colleges is approximately $11,400. Not only are government outlays sharply higher, but the cost differentials are even greater after accounting for the higher earnings (and associated taxes) of apprentices compared to college students.” “Stimulating a sufficient increase in apprenticeship slots is the most important challenge. Although it is easy to cite examples of employer reluctance to train, the evidence from South Carolina and Britain suggests that a sustained, business-oriented marketing effort can persuade a large number of employers to participate in apprenticeship training. Both programs (p. 251) were able to more than quadruple apprenticeship offers over about five to six years.” Hamilton Project, Brookings Institution. 2014, http://www.brookings.edu/~/media/research/files/papers/2014/06/19_hamilton_policies_addressing_poverty/policies_address_poverty_in_america_full_book.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 3 (Summer 2014): 249-56.
(Note: ellipsis in original.)

In Hamilton’s Financial System the “Cogs and Wheels Meshed Perfectly Together”

(p. 302) Much later, Daniel Webster rhapsodized about Hamilton’s report as follows: “The fabled birth of Minerva from the brain of Jove was hardly more sudden or more perfect than the financial system of the United States as it burst forth from the conception of Alexander Hamilton.” This was the long view of history and of many contemporaries, but detractors were immediately vocal. They were befuddled by the complexity of Hamilton’s plan and its array of options for creditors. Opponents sensed that he was moving too fast, on too many fronts, for them to grasp all his intentions. He had devised his economic machinery so cunningly that its cogs and wheels meshed perfectly together. One could not tamper with the parts without destroying the whole. Hamilton later said of this ingenious structure, “Credit is an entire thing. Every part of it has the nicest sympathy with every other part. Wound one limb and the whole tree shrinks and decays.”

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.
(Note: italics in original.)

Federal Government Main Cause of 2008 Financial Crisis

(p. A11) How much did the federal government contribute to the financial crisis? The question is quantitative, and the answer requires the kind of number crunching and careful thinking than cannot fit into an op-ed or television interview. Peter J. Wallison ‘s “Hidden in Plain Sight,” is the book that answers the question most meticulously of any written since 2008.
At this point, seven years on, most readers of this newspaper will recognize that the federal government’s role has been to force American taxpayers to subsidize trillions of dollars of risky lending. But each reader of Mr. Wallison’s book will come away a bit embarrassed at having neglected or forgot about one or more of Washington’s many contributions to the financial crisis.
. . .
In my opinion, a financial crisis is not only a likely consequence of implicit subsidies for risky lending but a necessary one because that is when implicit guarantees ultimately become real-life bailouts and trigger the taxpayer payments necessary to fund Washington’s longstanding lending goals. Mr. Wallison gives taxpayers the inside story of how housing policy was like a siphon hidden inside their wallets–and why it hurt so much.

For the full review, see:
CASEY B. MULLIGAN. “BOOKSHELF; Capitol Hill Pickpockets; Risky loans made by Fannie and Freddie were the biggest factor that led to the financial crisis–and the direct result of federal policy.” The Wall Street Journal (Weds., Feb. 25, 2015): A11.
(Note: ellipsis added.)
(Note: the online version of the review has the date Feb. 24, 2015.)

The book under review is:
Wallison, Peter J. Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again. New York: Encounter Books, 2015.

Annual Benefits of NAFTA: Canada $50 Billion, United States $127 Billion, Mexico $170 Billion

(p. 249) Gary Clyde Hufbauer, Cathleen Cimino, and Tyler Moran evaluate “NAFTA at 20: Misleading Charges and Positive Achievements.” . . . “Ample econometric evidence documents the substantial payoff from expanded two-way trade in goods and services. Through multiple channels, benefits flow both from larger exports and larger imports. . . . The (p. 250) channels include more efficient use of resources through the workings of comparative advantage, higher average productivity of surviving firms through ‘sifting and sorting,’ and greater variety of industrial inputs and household goods. . . . As a rough rule of thumb, for advanced nations, like Canada and the United States, an agreement that promotes an additional $1 billion of two-way trade increases GDP by $200 million. For an emerging country, like Mexico, the payoff ratio is higher: An additional $1 billion of two-way trade probably increases GDP by $500 million. Based on these rules of thumb, the United States is $127 billion richer each year thanks to ‘extra’ trade growth, Canada is $50 billion richer, and Mexico is $170 billion richer. For the United States, with a population of 320 million, the pure economic payoff is almost $400 per person.” Peterson Institute for International Economics, May 2014, Number PB14-13. http://www.piie.com/publications/pb/pb14-13.pdf.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 3 (Summer 2014): 249-56.
(Note: first ellipsis added; other ellipses in original.)

“Red Tape Is Good for the Government but Not for Us Chinese People”

(p. A8) China’s seven million public servants have long been a target of scorn by citizens who accuse them of endemic laziness and corruption. Last year, a municipal water official in Hebei Province with a history of turning off the taps of customers who refused to pay kickbacks — including an entire village — was detained after investigators found $20 million hidden in his home.
In the southwestern province of Yunnan, officials at a local land reclamation bureau often leave for lunch around 10:30 a.m., returning after 3 p.m. “It simply gets too hot to do any work,” Pan Yuwen, an agricultural adviser, said one rainy day last month when the temperature was a less-than-sultry 60 degrees Fahrenheit.
But more than lackadaisical bureaucrats, it is the head-spinning tangle of regulations that infuriates many ordinary Chinese. At the heart of their ire is the hukou, or family registration, an onerous system akin to an internal passport that often tethers services like public education, subsidized health care and pensions to a Chinese citizen’s parents’ birthplace — even if he or she never lived there.
. . .
One recent afternoon, Li Ying, 39, sat in a fluorescent-lit Beijing government office, waiting for her number to be called so she could apply for a temporary residence permit that would allow her 6-year-old son to enroll in school.
Although Ms. Li moved to Beijing with her parents as a child in 1981, her hukou is registered in a distant town, meaning her son will be shut out of the city’s public schools without the permit.
Among the 14 required documents, Ms. Li must provide her hukou certificate, proof of residence, a diploma, a job contract, a marriage license, her husband’s identity card, his hukou, a certificate proving that she has only one child and a company document detailing her work performance and tax payments.
“What a headache,” she said, a pile of paperwork balanced on her lap. “Red tape is good for the government but not for us Chinese people.”

For the full story, see:
DAN LEVIN. “China’s Middle Class Chafes Against Maze of Red Tape.” The New York Times (Sat., MARCH 14, 2015): A4 & A8.
(Note: ellipsis added.)
(Note: the online version of the story has the date MARCH 13, 2015.)

“He Used the Rich for a Purpose that Was Greater than Their Riches”

(p. 299) Hamilton’s interest was not in enriching creditors or cultivating the privileged class so much as in insuring the government’s stability and survival. Walter Lippmann later said of Hamilton, “He used the rich for a purpose that was greater than their riches.”

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Railroad Regulation Helped Kill Passenger Service

(p. 1179) By 1970, passenger service was a not only losing money, but had deteriorated to such an extent that it was no more the elegant transportation mode as it once was. No more were the Hollywood stars long distance rail passengers. No more movies like “North by Northwest,” which featured the New York Central’s Twentieth Century Limited service from New York to Chicago. The book highlights the factors causing the decline of private rail passenger service and the creation of AMTRAK. The authors cite ICC regulation, the growth in alternative modes, which were heavily subsidized, the mix of freight and passenger service on the same lines, and public policy, which favored the airline industry.
. . .
One public policy that government got right is deregulation. This started with the 3R Act, then the 4R Act and then the Staggers Rail Act of 1980, which had a massive impact on the industry. Deregulation culminated in the ICC Elimination Act, in which the ICC was replaced by the Surface Transportation Board–or STB–with substantially diminished regulatory power. Gallamore worked in government when much of this legislation was passed and gives a firsthand account of the debates that took place in Congressional (p. 1180) hearings and the discussions in and out of government on the merits of deregulation.
In the concluding chapter of the over 500-page book, entitled “Decline and Renaissance of American Railroads in the Twentieth Century” the authors provide a summary of the history of the railroads and the lessons for public policy in the future. This chapter is such a great summary, that the reader may be best off starting with it, before reading the book. But don’t forget the afterword, which provides the authors’ recommendations for future U.S. policies for the railroads. It is a very insightful chapter.
. . .
American Railroads should be on the reading list of economists interested in transportation and logistics, economic historians, government officials, and rail fans who would like to know more about the history of the railroads in the twentieth century, and are interested in understanding the economics of the industry and the problems of government regulation. Gallamore and Meyer, at the end of the book, sum up why it should be read:

This book’s authors love railroads because they have a great history, fascinating operations, intriguing technology and untold opportunity for the future, but we also love them because no other enterprises illustrate elegant economic principles quite so well (p. 435).

For the full review, see:
Pagano, Anthony M. “American Railroads: Decline and Renaissance in the Twentieth Century.” Journal of Economic Literature 52, no. 4 (Dec. 2014): 1178-80.
(Note: ellipses added.)

The book under review is:
Gallamore, Robert E., and John R. Meyer. American Railroads: Decline and Renaissance in the Twentieth Century. Cambridge, MA: Harvard University Press, 2014.

Heckman Thinks that Economists Who Are Only Economists May Be Dangerous

The Journal of Political Economy, edited by the University of Chicago economics department, is one of the three or four most prestigious journals in the economics profession. For the last 20 years or so (if memory serves) the back cover of each issue has had a funny quote or interesting or unusual anecdote, related to some aspect of economics.
I was surprised to see that the quote from the October 2014 issue as “suggested by James J. Heckman.” Heckman is a Nobel-Prize-winner who is known mainly for developing new econometric techniques in the area of labor economics. When I was a graduate student at Chicago, his graduate students tended to be among those who were most oriented to formalism and technique. So I was surprised to see that he had suggested the following quote from neo-Austrian economist and fellow Nobel-Prize-winner F.A. Hayek:

(p. 463) But nobody can be a great economist who is only an economist—and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger.

Source:
Hayek, F. A. “The Dilemma of Specialization.” In The State of the Social Sciences, edited by Leonard D. White. Chicago: University of Chicago Press, 1956.
(Note: I do not have the book, and cannot find the page range of Hayek’s article in the book.)

Chinese Communists Crush Innovative Entrepreneurs by Banning Open Internet

(p. A1) BEIJING — Jing Yuechen, the founder of an Internet start-up here in the Chinese capital, has no interest in overthrowing the Communist Party. But these days she finds herself cursing the nation’s smothering cyberpolice as she tries — and fails — to browse photo-sharing websites like Flickr and struggles to stay in touch with the Facebook friends she has made during trips to France, India and Singapore.
Gmail has become almost impossible to use here, and in recent weeks the authorities have gummed up Astrill, the software Ms. Jing and countless others depended on to circumvent the Internet restrictions that Western security analysts refer to as the Great Firewall.
By interfering with Astrill and several other popular virtual private networks, or V.P.N.s, the government has complicated the lives of Chinese astronomers seeking the latest scientific data from abroad, graphic designers shopping for clip art on Shutterstock and students submitting online applications to American universities.
If it was legal to protest and throw rotten eggs on the street, I’d definitely be up for that,” Ms. Jing, 25, said.
China has long had some of the world’s most onerous Internet restrictions. But until now, the authorities had effectively tolerated the proliferation of V.P.N.s as a lifeline for millions of people, from archaeologists to foreign investors, who rely heavily on less-fettered access to the Internet.
But earlier this week, after a number of V.P.N. companies, including StrongVPN and Golden Frog, complained that the Chi-(p. A6)nese government had disrupted their services with unprecedented sophistication, a senior official for the first time acknowledged its hand in the attacks and implicitly promised more of the same.
The move to disable some of the most widely used V.P.N.s has provoked a torrent of outrage among video artists, entrepreneurs and professors who complain that in its quest for so-called cybersovereignty — Beijing’s euphemism for online filtering — the Communist Party is stifling the innovation and productivity needed to revive the Chinese economy at a time of slowing growth.
“I need to stay tuned into the rest of the world,” said Henry Yang, 25, the international news editor of a state-owned media company who uses Facebook to follow American broadcasters. “I feel like we’re like frogs being slowly boiled in a pot.”
. . .
The vast majority of Chinese Internet users, especially those not fluent in English and other foreign languages, have little interest in vaulting the digital firewall. But those who require access to an unfiltered Internet are the very people Beijing has been counting on to transform the nation’s low-end manufacturing economy into one fueled by entrepreneurial innovation.
. . .
Avery Goldstein, a professor of contemporary Chinese studies at the University of Pennsylvania, said the growing online constraints would not only dissuade expatriates from relocating here, but could also compel ambitious young Chinese studying abroad to look elsewhere for jobs.
“If they aren’t able to get the information to do their jobs, the best of the best might simply decide not to go home,” he said.
For those who have already returned to China and who crave membership in an increasingly globalized world, the prospect of making do with a circumscribed Internet is dispiriting. Coupled with the unrelenting air pollution and the crackdown on political dissent, a number of Chinese said the blocking of V.P.N.s could push them over the edge.
“It’s as if we’re shutting down half our brains,” said Chin-Chin Wu, an artist who spent almost a decade in Paris and who promotes her work online. “I think that the day that information from the outside world becomes completely inaccessible in China, a lot of people will choose to leave.”

For the full story, see:
ANDREW JACOBS. “China Further Tightens Grip on the Internet.” The New York Times (Fri., JAN. 30, 2015): A1 & A12.
(Note: ellipses added.)
(Note: the online version of the story has the date JAN. 29, 2015.)