Owen abroad

Archive for November, 2005

Just back from Yosmite, where we went for Thanksgiving. We hiked to Cloud’s Rest (where this photo was taken), visited the Mariposa Grove of Giant Sequoias, and sat by log fires drinking cappucinos.

Though I am generally a big fan of the FT, this article by Andrew Balls (FT.com – subscribers only, reproduced free here) created a false impression of the contents of a recent Congressional Budget Office report (pdf) on the impact and role of immigrants in the US labour market.

Even the title, Increased migration to US holds back wages, is misleading. (I realise that journalists do not control the headlines that sub-editors put on their articles; but when the headline is comprehensively wrong it does suggest that the article may not have conveyed its meaning very effectively.)

Here is the first paragraph:

Increased immigration of low-skilled workers from Mexico and Central America helps to explain the pattern of low average wage growth in the US in recent years, the Congressional Budget Office said in a report released on Thursday.

You might reasonably conclude that migration is bad for the wages of native-born workers, since it slows down wage growth.  But you’d be wrong.  The CBO report is clear what causes this: the migrant workers themselves accept jobs for lower wages than native-born workers, and so depress the measured average wage of workers as a whole.

The CBO report does not find that increased migration reduces the wages of native-born workers.  It says:

More recent studies based on differences across a large number of local labor markets have continued to find little, if any, adverse effect on native workers. For example, based on his analysis of data from the 2000 census for about 300 metropolitan areas, David Card concluded  “Although immigration has a strong effect on relative supplies of different skill groups, local labor market outcomesof low skilled natives are not much affected by these relative supply shocks.

Now that is rather an important distinction.  The report does caution that there may be other changes which dull the impact of migration on native-born unskilled wages:

To the extent that employers or workers adjust their location decisions in ways that offset the otherwise adverse impact of immigration,the effects will be diffused.

The CBO paper has an interesting discussion of Borjas’s estimates which try to take account of this effect, making nationwide estimates of the impact of migration on wages of unskilled workers.  The estimates are inconclusive about the size of the effect, because the effect is muted by secondary adjustments that occur in response to the increased labour force (such as more investment, or greater educational attainment by native-born workers), whose size is unknown.

So what the CBO report tells us is:

• The migrant workers are better off (presumably, else they wouldn’t come)
• If there is a fall in the wages of native-born workers, it is too small to detect statistically, and the effect appears to be very small.
• The economy is more competitive, goods are cheaper and consumers (including native-born workers) are better off.

That sounds like a win for everyone.  It is a shame that the article, and especially the headline, in the FT chose to sound a misleading warning about a fall in average wages rather than highlight the reports conclusions of gains for everyone from more open migration policies.

There are two arguments for a Tobin Tax (i.e. a small tax on foreign exchange transactions):

• it would provide a dedicated source of revenue to pay for increases in aid;
• it would benefit the economy by reducing volatility by reducing the amount of trading in currency markets.

Neither of these arguments stands up to scrutiny.

First, we can increase aid without finding a new source of revenue.  UK Overseas Development Assistance is expected to be £4.9 billion this year, about 0.39% of GDP. We would need about another £3.8 billion a year to get up to 0.7% – the internationally agreed aspiration, which Jeff Sachs reckons is more than is needed to reach the Millennium Development Goals. UK public spending (measured as Total Managed Expenditure) is expected to increase by £28 billion in real terms over the next two years – we’d need about a seventh of the total increase to go to aid to reach the 0.7% target in two years.  Alternatively, it would need about 1p on the basic rate of income tax, or a 3p increase in the top rate of tax.  Linking aid increases to the introduction of a new tax (and one that is likely to be difficult, if not impossible, to get international agreement on) enables us to hide from the truth, which is that we haven’t increased aid because we don’t want to.

Second, I don’t understand why people think that high turnover in foreign exchange markets makes them more volatile.  Deep and liquid markets are more, not less, likely to converge quickly on prices that reflect the economic fundamentals.  The trends in currency prices that adversely affect poor countries are the inexorable long term depreciation as the terms of trade move against countries dependent on the export of primary commodities and the income gap between rich and poor countries continues to grow.  These long term trends won’t be reversed by a Tobin Tax.  If the problem was short term volatility, it would be simpler and cheaper to hedge than to try to reduce the volatility.

We went to see the Rolling Stones on Sunday evening at the SBC Stadium in San Francisco.

I had expected this to be a rather pitiful experience, like watching an elderly performing animal in a zoo – a historical curiosity rather than an enjoyable night out.

How wrong we were.  Watts, Wood, Jagger and Richards all seem in excellent shape – somewhat surprisingly, given what they have put their bodies through over the years.  They are all heroin-thin, and full of energy.  Jagger, in particular, danced, pranced, ran and jumped over the stage as if he was half his 62 years.

They peformed Stones classics such as Honky Tonk Women, Satisfaction, Sympathy for the Devil, Get Off My Cloud, Miss You, Brown Sugar, Start Me Up, and some tracks from their new album, which sounds as if it is a return to classic Stones form.  Some of their numbers were hits before I was born.

I couldn’t help feeling that the edgy rock and roll of the Stones compares favourably with Paul McCartney’s much tamer, more nostalgic tour playing old Beatles and Wings records.  McCartney is looking back; the Stones are still in the game.

There was a tremendous spread of ages in the crowd – from elderly rockers, reliving and remembering their youth, to teenagers seeing the Stones for the first time.  The entire stadium danced throughout the warm San Francisco evening.

Seeing them live it is obvious that Charlie Watts is underrated. His assertive drumming creates a disciplined framework, setting clear boundaries for his more anarchic friends.  Richards was playing his 5-string guitar most of the time, most noticeable in his trade-mark riffs in Honky Tonk Women, Brown Sugar, and Start Me Up.  Ronnie Wood, who still looks like his old band-mate, Rod Stewart, accompanies Jagger and Richards not only with his distinctive playing but with energy and a stage presence that makes you forget that he’ll soon be getting his bus pass.

We went to see Senegalese singer Youssou N’Dour on Saturday, live here on Berkeley in the Zellerbach Hall.

Youssou N’Dour became well-known outside Senegal after his collaboration with Peter Gabriel, formerly of Genesis, in the mid 1980s. He had popular success in Europe with "Seven Seconds", a big hit in 1994 with Neneh Cherry.

He has faced some criticism in recent years that his career has moved too far from its West African roots, and pandered too heavily to pop tastes in rich countries. The fast and furious mbalax (Wolof word for rhythm) rhythms that made him famous with his  first album, Immigrés, have been less and less in evidence in his recent work.

N’Dour recorded his latest album, Egypt, more than five years ago; but it has only just been released (delayed, in part, by the events of September 11, 2001.)  The album is a homage to the caliphs and saints of Senegal’s mystical ‘Sufi’ version of Islam.  The music draws from the largely Arab and middle Eastern tones of the streets of Cairo.  He worked with Egyptian musician Fathy Salama. On the album he does not sing a single work in English, though he did one song in English during the concert.

Egypt is an amazing combination of N’Dour’s voice with the drones of Egyptian reed instruments, the sweeping violins, cello and bass, and twittering African flutes. All the music is performed accoustically.  The power of N’Dour’s voice, with its enormous range, is much in evidence, and he demonstrates a more subtle touch than his earlier work.

You would be disappointed if you were expecting the foot-tapping, hip swaying mbalax rhythms of N’Dour’s youth. But it is music to bring the world together, combining Arab melodies, North African rhythms and West African vocals.

One admirable feature of Youssou N’Dour’s work, and part of the reason for his enduring popularity in Africa, is that he continues to make cassettes and albums specifically packaged and targeted at the African market.

Whenever multiple explosions occur at the same time we are told that the operation "bore all the hallmarks of al-Qaida".

Alan Adamson asks a question that has also been on my mind:

One meme I still do not get is the one that appears regularly after some attack like the one in Amman, Jordan, today, where a number of more or less simultaneous explosions occur, wreaking terrible damage and enormous loss of life. Usually reports on the topic are full of assertions that this had to have been the work of a sophisticated organization. Why? What does it take to get two or three people to strap on explosive belts, load up a car with explosive material, and go to some places and set them all off around the same time? This seems to me a very simple project.

This seems right to me.  Before suicide bombers, we used to try to to prevent bombings by making it difficult for the bomber to explode a bomb without risking his or her own life (for example, by ensuring that luggage was not loaded onto planes if the passenger did not board the same plane).  I can see that it might be fairly tricky for bombers to to plant bombs in multiple locations and have them explode at around the same time without risking their own lives.  But suicide bombing seems much simpler in terms of organisation.  How "sophisticated" do you need to be to pack some cars or rucksacks with explosive and agree a time to detonate them?

The other meme that I don’t understand is the idea that suicide bombers are "cowards".  I think they are psychopathic, evil, twisted, monstrous, brainwashed, sick and mad, in some combination. But I can’t see how it is cowardice deliberately to blow yourself up in the name of what you believe.  (Eugene Volokh agrees).

Norman Geras of Normblog interviews a different blogger each week.  I find these a fascinating insight into the many bloggers whose virtual company I enjoy. These are people with whom I debate, listen, learn, laugh, bicker, celebrate and mourn. And yet I know very little about them. Normblog’s profiles fill that gap.

Norm’s profile this week is of Chris Dillow, the author of Stumbling and Mumbling. Chris manages to combine passion and righteous indignation with a sometimes deadpan delivery (today’s entry considering whether suicide bombers are rational is a case in point).

Here is a sample:

What philosophical thesis do you think it most important to disseminate? > ‘The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant.’ – John Stuart Mill

What philosophical thesis do you think it most important to combat? > Managerialism.

I am full of admiration for Chris, which is why I am blushing furiously at having been named by him as one of his favourite bloggers. The feeling is mutual.

Today we remember the men and women who have served their country.  I am not a pacifist and I am grateful for the courage and sacrifices that have been made on my behalf.

At the going down of the sun and in the morning, we will remember them.

On a personal note, I was named in part after Wilfred Owen,  the First World War poet.  He fought heroically  in the Somme, and after medical treatment (the subject of Pat Barker’s book Regeneration) he returned voluntarily to the front. He was killed on 4th November 1918, just a week before the Armistice.  He was a courageous patriot who understood at first hand the horror of war. In 1917 he wrote Dulce et Decorum Est, one of the most expressive condemnations of war ever written:

…
If in some smothering dreams you too could pace 
Behind the wagon that we flung him in, 
And watch the white eyes writhing in his face, 
His hanging face, like a devil’s sick of sin; 
If you could hear, at every jolt, the blood 
Come gargling from the froth-corrupted lungs, 
Obscene as cancer, bitter as the cud
Of vile, incurable sores on innocent tongues, 
My friend, you would not tell with such high zest
To children ardent for some desperate glory, 
The old Lie; Dulce et Decorum est 
Pro patria mori.

I am confused about why Martha Kearney chose to ask the two Davids what sort of underwear they wear.   If a male interviewer had asked a female politician about her knickers, he would be thrown off the radio. And rightly so.

I have two older sisters, and no brothers.  So I obviously learned some of my language from them. When I went to boarding school, at the age of ten, it took several weeks before I realised that referring to my own underwear – Y-fronts, since you ask – as my "knickers" was not likely to make me popular with the other boys.  Or not the ones I wanted to be popular with. 

In the comments on my post on "Who benefits from globalisation?", both Ben and Paul ask what we might do to ensure that the poor obtain a greater share of the benefits of globalisation in the future. 

This is a very interesting question, worthy of a longer reply than I’m going to give it here. But here is an outline of what we might do.  I’d welcome other suggestions in the comments section.

1. Ensure that further liberalisation gives priority to changes that will benefit poor countries (eg removing agricultural subsidies, removing tariff escalation, unconditionally ending all quotas and tariffs on exports of LDCs, simplifying phyto-sanitary standards) rather than those which are primarily designed to benefit rich countries.
2. Give priority to extending the logic and practice of globalisation to the market for labour, to complement liberalistion of the markets for goods and for capital.  Even small increases in migration would be of huge benefit to poor countries.  The asymmetry of our policy rhetoric on free trade for goods but growing anxiety about the movement of people verges on hypocrisy.  We can’t expect others to accept our arguments on the benefits of globalisation if we remain adamantly opposed to those parts of it that we are uncomfortable about.
3. Massively increase investment in global public goods, such as R&D into scientific innovation that would help the poor (a green revolution in Africa, new vaccines, solar power etc), conflict prevention and reductions in environmental degradation.   By definition, the costs of these public goods should be paid by the world community as a whole, and not by individual countries; and rich countries should be investing much more of their wealth on them.
4. Give more aid.  We know that aid works, on average.  There is remarkable consensus about how much aid is needed to meet the Millennium Development Goals, and it isn’t very much.  A doubling of aid would have a huge impact on developing countries, and the cost to rich countries would be negligible within the context of public spending.
5. Increase knowledge sharing.  I am concerned that the gradual extenson of copyright and patents into more and more of commercial life makes it hard for poor countries to appropriate technology from rich countries and close the gap. This has been a mechanism through the ages by which the poorest have been able to catch up with the richest: my sense is that we are making it harder than ever for this to happen.  I think we have to find ways to ensure that poor countries have access to knowledge itself, and to knowledge-intensive products (eg computer software, pharmaceuticals, complex machinery) at tiered prices – the R&D costs should be paid by rich consumers, and poor countries should get access to these products at marginal cost (ie almost nothing).  It harms us not in the slightest for them to do so.

There is a separate question of how to pay for the measures with a fiscal cost (namely, more aid, more investment in global public goods). Paul’s comment is, I think, aimed at those who advocate new taxes (eg a Tobin Tax, departure tax).  He says If you are seeking to dictate to democratically elected governments how to run their economies I don’t think you are right. I basically agree with him on that. The costs are so trivially small that governments can absorb them within their normal budget process. The cost to the UK would be about a fifth of what David Davies proposes to save with his fiscal rule – it would mean very slightly smaller reductions in income tax.  Governments should decide on the case for new or different taxes on the economic advantages and disadvantages of the tax, not on the basis of the merits of the cause for which the revenues would be hypothecated. As it happens, I am not persuaded by the case for taxing foreign exchange transactions (a Tobin Tax); but I am in favour of taxing aviation fuel; both for microeconomic reasons, not because of how the money might be spent.

So that is my agenda for how we might ensure that we continue to deepen and extend globalisation and at the same time ensure that the poor secure the majority of the benefits.  I’d welcome comments or other suggestions in the comments below. 

Update 11 November: See Chris Dillow at Stumbling and Mumbling, who adds asset redistribution to the list of possible measures.

An interesting editorial in The Business on Sunday with which I largely agree:

The evidence from across the globe is overwhelming: governments that “protect” their industries hurt their economies and their people. .. Countries that really believe in free trade should simply make a unilateral declaration to scrap their tariffs without condition on the goods and services of developing nations …

 But I disagree with their criticism of David Cameron:

David Cameron, soon-to-be 20th leader of the Conservative party, can also be counted out. “The poor are getting poorer,” he claimed on a television debate last week, demonstrating his utter ignorance of the subject. The poor are being lifted out of poverty faster than at any time in world history, thanks largely to free trade. More progress has been made in the last 50 years than in the previous 500 years.

Credit where it is due: David Cameron is the first would-be leader that I can remember to speak about our responsiblity to tackle poverty.  Here he is in the Telegraph:

when the Conservative Party talks about international affairs, it can’t just be Gibraltar and Zimbabwe – we’ve got to show as much passion about Darfur and the millions of people living on less than a dollar a day in sub-Saharan Africa who are getting poorer while we are getting richer.

But are The Business and the Adam Smith Institute right, or is David Cameron right? Have the poor got poorer?  As ever, it depends who you mean, and over what time period. 

Here is GDP per capita, in real terms, over the last 30 years.  As you will see, GDP per capita in sub Saharan Africa is 8 percent lower today than 30 years ago; in OECD countries it is 86 percent higher.  But if you look only at the last decade, then incomes in sub Saharan Africa have begun to recover, as governance has improved, conflict abated and aid increased.  Within the region, some countries have grown faster, and some have continued to stagnate.  But broadly speaking, David Cameron’s claim is right: sub Saharan Africa is poorer now than it was 30 years ago.

GDP per capita (constant 2000 US$) Indexed to 1974=100
Source: World Bank national accounts, and OECD National Accounts.

But I think the question of whether the poor have got poorer is largely irrelevant. The more profound point, which I would like to have seen The Business, the Adam Smith Institute, this week’s Economist, and David Cameron all make, is this. Globalization makes the world richer, on average.  We should have more of it, not less of it.  The way to acclerate globalization is to distribute the gains of globalisation more fairly.  In the last thirty years, the gains have largely gone to the richer countries.  This is not surprising: the rich and powerful are able to capture more of the benefits than the weak and vulnerable.  But this cannot continue.  Let us ensure that in the next decade of deeper and faster globalisation, the benefits are mainly enjoyed by the poor.

Microfinance is trendy. But is it just another development fad, or is there evidence that microfinance really helps to stimulate economic growth? Even if there is, should donors do more to support microfinance?

My take on this is that microfinance, provided on a commercial basis, is self-evidently good. But that does not mean that we should welcome the stampede to subsidize microfinance. There are not strong arguments – either in principle or from evidence – that this is the best way to use scarce resources to help poor countries to grow.

Here I look at six reasons why microfinance is no panacea.
Read the rest of this entry »

Tony Blair on the anti-terrorism legislation:

if we are forced to compromise, it will be a compromise with this nation’s security, don’t let anyone be in any doubt about that

Right. A compromise is exactly what is needed. We have to decide how much risk we are willing to bear and what price we are willing to pay – in terms of liberties lost – to reduce those risks.

Here is Tony Blair in the preface to Risk and Uncertainty, a Government policy statement on handling risk:

It will rarely be possible for governments to eliminate risks entirely. All life involves some risk, and any innovation brings risk as well as reward – so the priority must be to manage risks better.

Read the rest of this entry »

Full story here

The Center for Global Development (which is where I work) has a new blog on international development issues.

… our own new effort at CGD has plenty of company – and plenty of competition for the limited attention span of our audience. Of course, as any development economist knows, competition is good. We are happy to be joining in such a lively marketplace for ideas and hope in our small way to make it livelier still.

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?) 

Alex Singleton, now at the Globalization Institute has been a leading opponent of Fair Trade labelling.  I argued some time ago that his negative view on Fair Trade was inconsistent with his belief in markets.

To his credit, Alex seems to be softening his position.  He says

But I’ve increasingly found being a critic of Fairtrade somewhat uncomfortable. … Let’s face it, the Fairtrade scheme – despite its provocative name – is not the opposite of free trade. It can go hand in hand with free trade – after all, it’s about consumers being free to choose to be altruistic when buying coffee.

Quite so.  It is a sign of his intelligence that Alex is willing to be convinced, and it reflects well up on him that he is open about changing his mind.  

The Globalization Institute’s new position will be set out in a report next year, including suggestions for improving the scheme.

I know it is unfashionable, but I am much less convinced than the GI that their beloved microcredit schemes do any good.  But that is a discussion for another day. 

David Davis has set out his stall on the size of the state and tax cuts:

A Conservative Government led by David Davis would introduce a new ‘growth rule’, ensuring that public spending increases by one per cent less than the trend rate of growth in the economy. This would allow for a reduction in the nation’s tax bill of £38 billion a year by the end of the next Parliament, which could be used to cut the basic rate of tax by 8p in the pound.

That sounds nifty.  Public spending up, tax bills down, without adding to borrowing.  All through the miracle of economic growth.

Is this as good a rule as Wat Tyler, Euroserf, The Right Way, and Andrew seem to think? 

No, it isn’t.  Here’s why:

1. It locks in whatever level of spending a Davis Government inherits – which might follow a pre-election spending spree, or a cyclical spending trough. 
2. It chokes off the automatic stabilizers, adding to the boom and bust cycle. Public spending should vary counter-cyclically. Spending on benefits rises naturally when economic growth is slow. This rule would force cuts in discretionary spending to offset those cyclical increases.  (An alternative formulation of the rule would have trend growth of spending slower than trend growth in GDP; this is avoids the mistake of being pro-cyclical, but at the expense of being impossible to monitor and enforce).
3. It is too blunt – it fails to distinguish government spending on goods and services, in which the government actually pre-empts the use of the economy’s resources, from transfer payments which move purchasing power from one person to another.  It is not at all obvious that these two – which have very different economic effects – should be subject to the same target growth rate.
4. It is too centralist – a central government target for General Government Expenditure means that central government has to set limits on local spending and stifle local decision making.  But then you cannot delegate choice to local communities to spend less, or more, on their local services.  Under this rule, if local communities decide to pay less tax, and reduce their local services, then central government would immediately step in to expand spending and tax elsewhere in the system to compensate.
5. It is not ambitious enough – it is a managerialist rule under which everything would grow a little bit every year.  A change of government should be the opportunity for radical reforms to produce a smaller public sector – for example by abolishing CAP, industrial subsidies and the independent nuclear deterrent.
6. It creates perverse incentives to fiddle the figures – a ceiling on General Government Expenditure creates incentives to pursue policy in sub-optimal ways such as through complicated tax reliefs instead of spending subsidies or by shifting spending to public sector corporations. 

(I cannot resist making the ultra-pedantic point that the growth of public spending should be one percentage point, not one per cent, below the trend growth of the economy.  This only matters because it suggests that whoever wrote the policy does not have much feel for economic statistics.)

Deciding the right size of the state is one of the most important choices any government can make. It defines the scope Government’s program and ambitions, and its attitude to the relationship between state and citizen.   A simplistic rule like this does not do it justice.

Update 3 November: Check the comments.  On my estimate, the Davis Rule would involve increasing spending by £30 billion a year by the end of a 5-year parliament. It would be £14 billion a year lower than if spending grew in line with GDP (not £38 billion a year lower as DD claims).

It is a great pleasure to see an argument full of hot air punctured with by a the cold, hard, stiletto steel of logic.

Tim Worstall argued at the Adam Smith Institute blog that:

…  British Airways allows passengers, for a modest sum, to offset the carbon emissions from their flight. Roughly 1 in 200 actually do so, which would, on a strict reading of people’s preferences, mean that 0.5% of the flying population are prepared to pay more to avert climate change.  … There really is a large difference between how much extra people say they would like to pay for things and how much extra they actually will pay. Probably has something to do with why taxes are usually mandatory rather than voluntary I suppose.

And in the comments, Patrick Hubble wields the intellectual stiletto that punctures Tim’s bubble:

Surely if asked the question, ‘would I rather pay more tax / pay more to save the environment / etc,’ a ‘yes’ answer means ‘yes, if everyone else does’, not ‘yes, I’m prepared to be a mug whilst everyone else freeloads on my generosity (stupidity)’. 

That whistling sound you hear is a bag of hot air deflating. 

What the hard line libertarians don’t get is that some choices only make sense if we make them collectively.  Individually we would – rationally – make choices that lead to outcomes that are irrational for us collectively; and that is why we establish systems to enable us to make choices together.  Government is such a system. The fact that people would choose differently if they were making an individual choice is not an argument against government, it is precisely the reason why we need it.

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?