Daron Acemoglu is Blogging

The guy is basically top of the game in Economic History writing, seventh most cited economist according to Repec. He and James Robinson have started a blog called “Why Nations Fail” to coincide with their new book of the same title.

Summary as lifted from their site:

Is it culture, the weather, geography? Perhaps ignorance of what the right policies are?

Simply, no. None of these factors is either definitive or destiny. Otherwise, how to explain why Botswana has become one of the fastest-growing countries in the world, while other African nations, such as Zimbabwe, the Congo, and Sierra Leone, are mired in poverty and violence?

Daron Acemoglu and James Robinson conclusively show that it is man-made political and economic institutions that underlie economic success (or the lack of it). Korea, to take just one of their fascinating examples, is a remarkably homogeneous nation, yet the people of North Korea are among the poorest on earth while their brothers and sisters in South Korea are among the richest. The south forged a society that created incentives, rewarded innovation, and allowed everyone to participate in economic opportunities. The economic success thus spurred was sustained because the government became accountable and responsive to citizens and the great mass of people. Sadly, the people of the north have endured decades of famine, political repression, and very different economic institutions—with no end in sight. The differences between the Koreas is due to the politics that created these completely different institutional trajectories.

Based on fifteen years of original research, Acemoglu and Robinson marshal extraordinary historical evidence from the Roman Empire, the Mayan city-states, medieval Venice, the Soviet Union, Latin America, England, Europe, the United States, and Africa to build a new theory of political economy with great relevance for the big questions of today, including:

  • China has built an authoritarian growth machine. Will it continue to grow at such high speed and overwhelm the West?
  • Are America’s best days behind it? Are we moving from a virtuous circle in which efforts by elites to aggrandize power are resisted to a vicious one that enriches and empowers a small minority?
  • What is the most effective way to help move billions of people from the rut of poverty to prosperity? More philanthropy from the wealthy nations of the West? Or learning the hard-won lessons of Acemoglu and Robinson’s breakthrough ideas on the interplay between inclusive political and economic institutions?

Why Nations Fail will change the way you look at—and understand—the world.

Follow the blog, you will become a more fulfilled human being if you get off on learning interesting things.

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Update: Whoa, whoa, whoa, they don’t allow comments! Minus points. Bad Acemoglu and Robinson!

Bulgaria under the yoke of Communism again

Spiegel: Great Wall this week became the first Chinese automobile manufacturer to open an automobile assembly plant inside the European Union…

…Bulgaria, the EU’s poorest country, is attractive as a labor market because it is an oasis of cheap wages and low taxes. Workers are considered well educated and the country is ideal as the site for a company like Great Wall to launch. Given that wages for factory workers have risen considerably in China in recent years, assembly sites abroad have become increasingly attractive for some manufacturers.

(H/T). Some thoughts:

  1. Don’t overweight cheap labour and underweight transport costs and clustering in thinking about global trade.
  2. There will be more of this. In the end the country with the most people wins – that means China for a while and India afterwards.
  3. There should be less of this, trade barriers mean international investments need to be made that would not were the EU a true open borders free trade area.
  4. East Asian labour is remarkably low-skilled and poorly educated despite what positive prejudices  you might hold.
  5. Technology is highly mobile and drives convergences in incomes all round the world in interesting ways.
  6. The future prosperity do the world depends on the rich world restraining its xenophobic hostility to foreign capital, as much as foreign workers. You boss may one day speak another language and earn much of his money in a foreign currency, that should be fine so long as she still pays your wages.
  7. We live in interesting times.

You can think a foetus is a person and still think abortion is okay

On abortion, no, just no:

On the one side, it’s not a human, just a blob, entirely up to the woman what she wants to do with it.

On the other it’s one of God’s chosen creatures and so deserving of the same protections the rest of us get.

You can think a foetus is a person and that a woman is allowed to abort it.

If a woman’s body is her own – and it is – then even if someone is reliant on her for life she has the right to refuse that support. A foetus’s right to life does not involve the right to use someone else’s body…

You wake up in the morning and find yourself back to back in bed with an unconscious violinist. A famous unconscious violinist. He has been found to have a fatal kidney ailment, and the Society of Music Lovers has canvassed all the available medical records and found that you alone have the right blood type to help. They have therefore kidnapped you, and last night the violinist’s circulatory system was plugged into yours, so that your kidneys can be used to extract poisons from his blood as well as your own. [If he is unplugged from you now, he will die; but] in nine months he will have recovered from his ailment, and can safely be unplugged from you.

So the argument should not be sidetracked by debates on whether a foetus is alive or not. The real crux of the matter is whether a woman’s body is her own or that of society.

You could say that the woman chose to have sex and that implies an obligation to the consequence of that. But that just underlines the real reason most religious people are against abortion; babies are punishment sluts for having sex.

Consider for example, if you really, actually, honestly thought life began at conception then you would be in constant mourning. At least half of all fertilised eggs fail to implant. That means that for every person born at least one has already died, the attrition rate makes abortion seem trivial. There is basically no better way to spend money to save lives than working to improve that statistic. Yet anti-choicers spend money punishing sluts campaigning to lower the termination limit on abortions.

Call it revealed preferences, anti-choicers like punishing women, but not working to improve embryonic implantation rates. Makes you question their motivations, no?

Cognitive Biases and Workfare

That last post got me thinking about cognitive biases. Being in contact with the unemployed  makes you more miserable than otherwise, but not because it actually increases your chances of unemployment – it isn’t contagious. So people’s change in behaviour or happiness must be a result of new information or old information which they were previously choosing to ignore.

While Chris (and Layard) are correct, workfare or active labour market polices can be good things, the positive effects – lower inflation and higher growth – are diffuse and the negative effects felt by both those in workfare and who meet those in workfare. So it is possible that seeing what unemployment is really like, and the exploitative practices associated with workfare is new information for some people.

Alternatively, people choose to know less about unemployment than they could and unconsciously engage various cognitive biases to effect this. To this extent cognitive biases protect most people from the negative effects of unemployment.

This means that theoretically the left should welcome workfare, for it finally destroys the recent idea, codified by Thomas Friedman, that we need to build our own economy and that we can be in control of Brand Me. Thinking an individual is responsible for their own economy and economic position is fanciful. Just as blaming the unemployed for their plight is a variant of the fundamental attribution error so too is entrepreneurial fetishism. Calculus was invented twice at the same time; someone was going to invent a pretty mp3 player eventually; somebody was going to get social networking right, some ideas are just in the air. That doesn’t mean it doesn’t make sense to handsomely reward entrepreneurs, because it means we get a more pregnant air from which they pluck ideas, but it does mean we shouldn’t attribute too much genius or control to any one person or group.

That is standard fair on the left, waking up the sheeple…

…so it should be some consolation that workfare will work to either let the employed know how horrible being jobless really is, or will breakdown whatever protective cognitive barriers they’ve erected to protect themselves from those grim truths.

Cognitive biases can lead to sloppy policy so inasmuch as they protect individuals by imposing costs on others they are good things to eliminate but it has to be remembered that they do something useful by protecting people from unpleasant truths. So finding policies that break through them will not be unambiguously good but I hope they will eventually be good.

Workfare’s Impact on Those in Work

Consider these paragraphs:

Example 1:

She was put on a work placement with Superdrug over the Christmas holidays, unpaid. Just JSA and travel expenses. After the new year she was told by Superdrug not to go back, without any explanation.

Example 2:

Poundland requested two candidates a week to be “inducted”. They then spend the next two weeks stood up on the tills for JSA plus travel. At the end of the two week placement they are no longer needed and sent back to us.

Liberal Conspiracy reports the sort of experience that would make anyone angry and any employee worried about their employer’s conduct. Next consider this paragraph:

It is shown that, over all respondents, well-being is typically negatively correlated with others’ unemployment. However, closer examination reveals a distinct pattern in this correlation: the well-being of the employed is often lower when the unemployment rate of others is higher; on the contrary, the unemployed report higher levels of well-being as others’ unemployment rises. The psychological experience of unemployment is tempered by the labour market status of those with whom the individual is in close contact, as models of comparisons or norms would imply. This relationship could also help to explain the polarisation of work between households.

Andrew Clark‘s paper is proof of the old saying that “misery loves company” and conversely that “happy people hate the company of the miserable,” a saying less well known, but true nonetheless. The two excerpts are connected. Liberal Conspiracy has discussed the growing phenomenon of workfare, imported from Australia and the US but always intellectually popular with  the right of this country. Working for your crust of bread, ostensibly for your own good.

What has not been discussed so far is the effect of workfare on those in work. That’s understandable, workfare’s main problems impact those involved, but workfare’s impact will be even more penetrating than already reported, and harmful in ways not yet discussed.

There are two reasons higher unemployment makes the unemployed more happy, one it allows them to discount any feelings of personal failing – hey, there’s a depression! What can I do? – and two it means there are other people in the same circumstance with which they can socialise: Clark found a strong effect on the reported wellbeing of the unemployed when more than one unemployed person was at home with them because they could share household tasks and lessen the increase housework associated with unemployment.

Similarly, employed people surrounded by the unemployed report liow well being for a couple of reasons.  Predominantly though, it is caused by increased nervousness; caused by an increased recognition that their employment situation is precarious and that they too could become unemployed (from Chris: pdf, pdf).

By bringing the unemployed into closer contact with the employed workfare will reduce the wellbeing of the employed if it reinforces feeling of insecurity with respect to keeping a job and powerlessness over one’s employment prospects. Unfortunately, this appear to be exactly the sort of workfare we’re getting.

A workfare which worked, in which the unemployed were given skills and opportunities to find jobs themselves or massaged into jobs when this failed would raise the wellbeing of those newly employed by getting them a job and the wellbeing of those already employed by making them feel more secure in their job and the job market in general. Very little research has been done on what effect workfare has on the attitudes of those already working in firms making use of it, but anecdotally it appears workfare as currently practiced is hurting everyone.