Owen abroad

Archive for the ‘Travel’ Category

Christoph Niemann at the New York Times offers a splendid visual diary of a trip from New York to Berlin. The first image is below. More here.

from the New York Times Abstract City blog

Owen on the Swiss-French border

We are back in Addis after backpacking through France, Italy and Switzerland on the Tour de Mont Blanc.  Highly recommended: if you are interested, the details are elsewhere on this site.

I’ve come back buzzing with energy. (Memo to Americans: you guys really need to take more vacation. I reckon they increase my average productivity, aside from the other benefits.)

The normal stream of opinion, lightly diluted with facts, will resume here shortly.

So, what did I miss?

If we want to reduce carbon emissions, should we cap the total and then allow trading, or should we impose a tax on all carbon emissions? Organizations and Markets looks at the economics. Here is the conclusion:

So the final score is: Permits get a moderate edge on political economy/public choice issues; taxes have a big advantage on institutional/governance issues; and taxes deliver a big can of whipass on traditional economic efficiency concerns. So conditional on accepting the weak case for CO2 emissions control, the Pigou people have a strong case against the cap-and-trade brigade. Maybe they should start making it.

One issue that is not covered here is the distribution between countries. From the point of view of developing countries, cap-and-trade (with equal per-capita emissions targets) presumably has a large advantage over taxing emissions, in the absence of a mechanism to redistribute the revenues from rich countries (which will collect the taxes) to poor countries (who bear most of the costs of adjustment to climate change).

Hat tip: Economist blog. Also Greg Mankiw

Delivering the State of the Economy report on Wednesday, George Bush made the most effective case for the global trade talks that I can remember him making:

…  And the question for America is whether we treat the changes in our economy as opportunity to help improve people's lives, or as an excuse to retreat into protectionism.

… we can make our economy more flexible and dynamic by expanding trade. America has about 5 percent of the world's population. That means 95 percent of our potential customers are abroad. Every time we break down barriers to trade and investment, we open up new markets for our businesses and our farmers. As we improve free trade, consumers get lower prices. There are better American jobs. You see increased productivity. Jobs supported by exports of goods pay wages that are 13 to 18 percent higher than the average. So one of our top priorities has been to remove obstacles to trade everywhere we can.

When I took office, America had free trade agreements with three countries. We have free trade agreements in force now with 13 countries — and we have more on the way. These agreements are leading to direct benefits for America's businesses and, equally importantly, America's workers. Yesterday, I went to the Caterpillar plant in Peoria, Illinois — that's where they make big bulldozers. The folks there told me that Caterpillar now exports more than one-half of the products they make. They see immediate results when we have broken down barriers to trade. Within two years of implementing our free trade agreement with Chile, Caterpillar's exports to that country have nearly doubled. The opening of this and other export markets has led Cat to add thousands of new jobs here in America.

Manufacturers, farmers, and service providers all across our country have similar stories. So we need to continue to level the playing field for our goods and services. I strongly believe this: When people around the world have a choice, they choose goods that say "Made in the USA."

…At this moment, the most promising opportunity to expand free and fair trade is by concluding the Doha Round at the World Trade Organization. Global trade talks like Doha have the potential to lower trade barriers all around the world. They come around only once every decade or so. Successful trade talks will have an enormous impact on people around the world. Since World War II, the opening of global trade and investment has resulted in income gains of about $9,000 a year for the average American household.

The Doha Round is a chance to level the playing field for our goods and services — in other words, so we can be treated fairly in foreign markets — but it also is a great opportunity to lift millions of people out of poverty around the world. And so we're going to work hard to complete it. We are dedicated to making sure we have a successful Doha Round.

The only way America can complete Doha and make headway on other trade agreements is to extent Trade Promotion Authority. This authority allows the President to negotiate complicated trade deals for our country, and then send them to Congress for an up or down vote on the whole agreement. Presidents of both parties have considered this authority essential to completing good trade agreements. Our trading partners consider it essential for our success at the negotiating table. The authority is set to expire on July 1st — and I ask Congress to renew it. I know there's going to be a vigorous debate on trade, and bashing trade can make for good sound bites on the evening news. But walling off America from world trade would be a disaster for our economy. Congress needs to reject protectionism, and to keep this economy open to the tremendous opportunities that the world has to offer.

Amen to all that.  Completing the Doha round with a good result for developing countries is absolutely essential to enable the world's poor to benefit from economic growth that will lift them out of poverty.

It seems churlish to quibble with what is essentially a welcome and reasoned defence of trade liberalization and the need for a multilateral trade round.  But I can't help noticing that President Bush seems to believe the right thing for the wrong reasons.  He focuses his argument on the possible benefits for American exporters of lower trade barriers elsewhere, though he does at least mention the bigger benefit for America of cheaper imports.  The only reason that this matters is that if politicians believe that the main benefit of a trade deal is improving the opportunities for their exporters, they will tend to hold out for a trade deal in which other countries agree to make reductions in tariffs and quotas.  When they realize that the main benefit is cheaper imports, they will be more inclined to recommend market opening to other countries, but not make a trade deal conditional on it. 

The ODI blog uses the debate about BAE in Tanzania as a hook for the broader issue known in Whitehall as "Policy Coherence for Development" – that is, the extent to which our policies on issues other than aid – such as trade, arms exports, financial stability, corruption, climate change, migration, intellectual property  – either support, or perhaps undermine, the prospects for developing countries.

In my view, getting these issues right is at least as important as aid for providing the circumstance in which poor countries can lift themselves out of poverty.

DFID will be publishing its first annual report to Parliament on policy coherence, following Tom Watson's Tom Clarke's Private Members Bill (International Development (Reporting and Transparency) Bill).  This should help to build awareness across Government of the importance of these issues for promoting international development, which is in all our interests in the long run.

[Thanks to Richard for spotting that I had the wrong Tom] 

Five hundred economists have signed an open letter on immigration.  These include five Nobel Laureates—Thomas C. Schelling, Robert Lucas, Daniel McFadden, Vernon Smith and James Heckman.  And, for what it is worth, me.  The letter says:

We must not forget that the gains to immigrants coming to the United States are immense. Immigration is the greatest anti-poverty programever devised. The American dream is a reality for many immigrants whonot only increase their own living standards but who also send billions of dollars of their money back to their families in their homecountries—a form of truly effective foreign aid.

Of course, we may not be right.  But the breadth of the consensus is striking.

The letter is framed in a mainly the context of the American debate, which is a little different from Europe.   America makes it relatively easy for immigrants to work, but hard for immigrants to claim welfare benefits.  Europeans tend to make it hard for immigrants to work, but relatively easy to claim welfare.  Thus in America the debate focuses mainly on the impact on jobs and wages, while in Europe there is more discussion about fiscal costs.

I have never thought of my gaff in the Elephant and Castle as being in a fashionable part of London – though I personally like the area, and I think it is underrated (and hence relatively cheap, considering how central it is).

But I see from this article in The Observer that, unbeknownst to me, I in fact live on the fringe of a fashionable part of the city.  Gaby Hinsliff and Conal Walsh criticize Sean Woodward for using his MP’s allowance to pay for an appartment "London’s fashionable South Bank".  What is bizarre is that there is no suggestion that Mr Woodward has done anything wrong: he has used his additional cost allowance for exactly the purpose for which it is intended (defraying the costs of a London home that an MP needs to do his or her job) and the article admits that he has claimed no more than he is entitled to.  But Ms Hinsliff, the utterly useless political editor of the Observer, seems to think that because Mr Woodward is rich, he should forgo claiming these allowances.

I’ve got a post up at Views from the Center – the Center for Global Development blog on development issues, taking issue with Jagdish Bhagwati in today’s Financial Times who says that Bono is noble but misdirected.

Malcolm Gladwell on employer-provided health care:

The closest I can come is to imagine if we had employer-based subways in New York. You could ride the subway if you had a job. But if you lost your job, you would either have to walk or pay a prohibitively expensive subway surcharge. Of course, if you lost your job you would need the subway more than ever, because you couldn’t afford taxis and you would need to travel around looking for work. Right? In any case, what logical connection is there between employment and transporation?

It is good to see Americans questioning the cost and inefficiency of employer-provided health-care. While the analogy is amusing, it does not completely hang together, as the cost structure of the subway (huge fixed costs, small variable costs, and a natural monopoly) is very different from the health industry (high variable costs, and some scope for competition).

It is worth remarking that the absurd US system of employer-provided healthcare is a good example of the law of unintended consequences: it came about because of government imposed restrictions on wages during the Second World War, so employers provided health care insurance instead.

Try out this Africa Quiz from the excellent Ethan Zuckerman. I’m ashamed to say that I got one wrong.

Politicians, the media, bloggers and other armchair experts on development almost all agree that aid for developing countries should be conditional on reforms by recipient countries, and that aid should be tied to conditions about how the aid is used.  But this approach is generally not supported by people who work in development.

I’ve written a paper which looks at the advantages and disadvantages of conditionality.   Unlike many critics of conditionality, I am broadly supportive of the policy reforms that donors recommend.  But I am not at all convinced that aid conditionality is the right way to get those reforms implemented.

There are three possible arguments for conditionality:

(a) Conditions on aid might increase incentives for policy reform by developing country governments.

(b) Allocating aid to countries with good policy environments might increase the impact of aid spending.

(c) Aid conditions might increase our ability to account for how the money was used and what effects it had.

Alongside these advantages, we should consider the possible disadvantages of aid conditionality.

(a) The conditions increase transactions costs, for both the donor and especially for the recipient.

(b) Conditions may reduce predictability, which in turn reduces the effectiveness with which aid is used.

(c) There is a possibility that some of the policy prescriptions are incorrect, either because they reflect donor interests or because some of the international experts have given poor advice.

(d) The conditions may undermine internal government systems for prioritising, allocating, managing and accounting for public spending.

(e) The imposition of external conditions may contribute to poor accountability of developing country governments to their own citizens.

As set out in detail in the longer note, the arguments for conditionality are not very persuasive; but the possible adverse consequences are alarming.  I conclude that aid  should take the form of long-term, predictable commitments, focused on countries that are pursuing policies that are likely to benefit the poor. I support aid “selectivity” linked to long-term outcomes, which is a far cry from the current system.

You can read the full note here.

The TV commentators here in the US are distinctly underwhelmed by the visit of the Prince and Princess of Wales; they are not just bored, they are mocking the British.  Maybe, as Christine Odone claims (via Tim) it is because a second marriage to your long-time mistress is less romantic than marrying a glamorous airhead. But what I’ve heard suggests a more fundamental distaste for the idea and practice of monarchy. The criticisms I’ve heard on the box in the last 24 hours include:

• "why should we block the traffic for an un-elected official?"
• "he isn’t very intelligent – he just likes anything spiritual"
• "what gives him the right to come and wag his finger at us about Kyoto? Who elected him?"
• "hereditary power is just .. unAmerican"
• "why don’t the British just get over this stuff already?"

All of which, it seems to me, are fair points; and they demonstrate that America’s deep-rooted commitment to democracy is alive and kicking.

(As an aside: when we have to carry identity cards, will Camilla’s include her real legal title – Princess of Wales – or the pseudonym she uses – Duchess of Cornwall?  Are we allowed to put fake names on our id card?) 

I have made my first contribution as a member of the team at The Sharpener.  It discusses the economics of branding – are brands good for the economy, or merely a transfer from consumers to producers?

Joseph Kony, leader of Uganda’s Lord’s Resistance Army, has been indicted by the International Criminal Court.

The Lord’s Resistance Army (LRA), formed in 1987, is a rebel paramilitary group operating mainly in northern Uganda. The group is engaged in an armed rebellion against the Ugandan government in what is now one of Africa’s longest-running conflicts.

It is led by Joseph Kony, who proclaims himself a spirit medium and apparently wishes to establish a state based on his unique interpretation of Biblical millenarianism.

It is estimated that around 20,000 children have been kidnapped by the group since 1987 for use as soldiers and sex slaves. The group performs abductions primarily from the Acholi people, who have borne the brunt of the 18-year LRA campaign. The insurgency has been mainly contained to the region known as Acholiland, consisting of the districts of Kitgum, Gulu, and Pader, though since 2002 violence has overflowed into other districts. The LRA has also operated across the porous border region with Southern Sudan, subjecting Sudanese civilians to its horrific tactics.

Up to 12,000 people have been killed in the violence, with many more dying from disease and malnutrition as a direct result of the conflict. Nearly two million civilians have been forced to flee their homes, living in internally displaced person (IDP) camps and within the safety of larger settlements, sleeping on street corners and in other public spaces. The plight of these people has received little media coverage in affluent countries.

These are the first indictments by the International Criminal Court. 

I have mixed feelings about this.  It is good to see the ICC up and running, despite the opposition of the United States.  It is good to see bad men like Kony on the wrong end of international legal proceedings.

But it is hard to see how there can be a peaceful settlement to what is effectively Africa’s longest running war now that Kony faces trial in the International Criminal Court.  The international community owes it to the people of Uganda to provide resources, logistics and military support to bring the war to an end and to bring the leaders of the LRA to justice. 

But perhaps our commitment to a war on terrorism does not run that deep?

I’m sitting in a coffee bar in Berkeley, which is about my favourite state of being.

There’s been some good music playing … Beatles (White Album), David Bowie (Let’s Dance), Pink Floyd (Murmur).

And I’ve just realised that all the bands they’ve played are British.  And that we are disproportionately well-represented in the annals of great pop music. 

Ah: now it’s Simon and Garfunkel.  A reminder that there are some great American singers and songwriters too. 

Economists will be in favour of road users paying what it costs to use their car – including the costs of pollution, other damage to the environment, and congestion. So I am broadly sympathetic to Alastair Darling’s proposals to charge road users. But I don’t understand why it isn’t simpler and less bureaucratic just to put up road fuel duty? (I would abolish the Vehicle Excise Duty at the same time.) Fuel consumption isn’t an exact measure of the full cost of a mile driven, but it must be a pretty good approximation. Are there really big enough benefits from using a satellite tracking system to charge by the mile, instead of charging per gallon of petrol used, to justify the huge cost?

Anatole Kaletsky has this article in the May 2005 edition of Prospect which argues that economics has been of declining political importance – as evidenced by the absence of economic policy as an important topic in the 2005 General Election.

Since the mid-1990s, however, the idea of economics as the dominant factor in British, American or European elections has become untenable, as in country after country economic and electoral performance have diverged.

Kaletsky is right that old-fashioned economic policy debate has not been much in evidence this year, but wrong about just about everything else.

• Kaletsky is wrong to say that we have conquered boom and bust. This is a common self-deceit at this point in the business cycle: Nigel Lawson said just the same in 1988, towards the peak of the long 80s boom and before the disastrous recession that followed it. All experience tells us that there will be a down turn, whether triggered by a collapse in house prices, or the dollar, or confidence in the Euro, or energy prices, or a financial scandal arising from the failure of split-cap funds or derivative trading …. or something else completely.
• Kaletsky is wrong that using only monetary policy for demand management to stabilise the economy will lead, in the long run, to a more stable economy than using a combination of the two; indeed, one of the most significant downside risks to the economy in the coming years is the failure of the US to maintain a proper balance between fiscal and monetary policy, resulting in the catastrophic collapse in domestic savings, the unsustainable current account deficit and – eventually – the devaluation of the exchange rate that must follow. Demand management would be more successful, and more stable, if governments used both fiscal and monetary policy to pursue economic growth and price stability.
• Kaletsky is wrong that the shift of output from manufacturing to services will reduce the risk of an investment-led business cycle. Though we may invest less than we did in machine tools and factories, we invest instead in human capital, software, brands and other intangible assets that underpin the service economy. There is nothing in the theory of the investment cycle to suggest that it only applies if the investment is in physical capital.
• Kaletsky is wrong to say that the composition of our economic output makes it less volatile as we shift to "platform companies" like Dell and Nike. It is true that the production of primary commodities is more volatile than many other activities – but there hasn’t been a significant part of the economy doing that for many years. Some of the activities we have "kept for ourselves" are amongst the most volatile possible sources of income: marketing and brands can collapse in value overnight (think of Arthur Anderson), whereas a t-shirt factory can always make shirts, even if they have to cut the price a little to stay in the market. R&D, training, and marketing are notoriously volatile – being the first lines in the budget to get cut when times are bad.
• Kaletsky is wrong to say that there is no longer disagreement about the most important issues ("almost impossible for any serious politician to question the bedrock principles of the capitalist economy: private ownership, competition and the profit motive."). What about the very live debate in the context of the EU Constitution about whether we want an "anglo-saxon" economic model or a "social partners" model?

It is true that the debate is no longer in the same language as the 1970s and 1980s. But most of the key political issues of the day are issues of economic policy: from the make poverty history campaign to global warming, from pensions policy to immigration and asylum seekers, there is a profound debate being played out. In short, Kaletsky inhabits an intellectual era that does not recognise the challenges of globalisation and poverty, the environment and immigration as fundamental issues of our economic well-being.

We spent the weekend in Pennsylvania. You can see the photos here. 

Philadelphia was the venue for the meetings which lead to the drafting of the US Declaration of Independence, and the US Constitution – documents (esp the Declaration of Independence) which are, even today, inspiring and radical. It is difficult to conceive of such a group of people coming together today. 

Lancaster County was beautiful. The life of the Amish people (the subject, in part, of the movie Witness) is fascinating. I was touched that the reason for the lifestyle they choose is not a sense of biblical injunction, but a set of choices about how best to preserve the family at the centre of their lives.

On the way back to Washington, we stopped, almost accidentally, in Gettysburg, the site of the most decisive battle of the civil war. The battlefield museum vaut le detour if you are passing by. Abraham Lincoln's Gettysburg Address is, of course, one of the great pieces of political oratory. It was interesting to see where it was delivered, and learn a little about the background to it. (Read the Gettysburg Address here.)