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Most people who follow the economics blogosphere have seen the famous picture of the world’s lights at night. The most popular use is to point out the stark difference between North Korea and South Korea.

I found some beautiful pictures that use that satellite data and colored changes in illumination.


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I think that the image of Europe is the coolest.

Millenocket, ME. has the right idea. Matthew Yglesias has apparently been to Millenocket, and finds what they are doing funny. I’ve never been there, but as the article points out, it’s a pretty dead town, with horrible weather…so it seems out of place:

Never mind that Millinocket is an hour’s drive from the nearest mall or movie theater, or that it gets an average 93 inches of snow a year. Kenneth Smith, the schools superintendent, is so certain that Chinese students will eventually arrive by the dozen — paying $27,000 a year in tuition, room and board — that he is scouting vacant properties to convert to dormitories.

There are three ways in which I’d like to analyze this development; from an economic standpoint, a human welfare standpoint, and a social standpoint. I will argue that all three a net benefits to the US and the world, and we should make a long-term policy commitment to this type development around the country (and, indeed, other countries should imitate it).

The economics of importing capital through education are fairly straightforward. The long run growth of an economy, given money neutrality, is a function of an economy’s real capital stock. Ceterus paribus, increasing the efficiency of capital increases the ability of an economy to grow in the long run. If the $27,000 spent on educating a Chinese child is more productive than any other investment, which means the real returns to a US education are higher than any other investment available to them (something that is almost surely the case), then this results in an increase in the marginal efficiency of capital. Whether these Chinese immigrants remain in the US, or return to China, the effect on world growth will for the better. Literally everyone will be better off due to the rising of the world Wicksellian equilibrium interest rate as China and other countries become more productive (and thus, richer).

The US is arguably much more efficient at education than the Chinese, so why not export education?

From a human welfare standpoint, consider this analysis from the World Bank:

This volume asks a key question: Where is the Wealth of Nations? Answering this question yields important insights into the prospects for sustainable development in countries around the world. The estimates of total wealth–including produced, natural, and human and institutional capital–suggest that human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries.

[…]

Growth is essential if developing countries are to meet the Millennium Development Goals by 2015. Growth, however, will be illusory if it is based on mining soils and depleting fisheries and forests. This report provides the indicators needed to manage the total portfolio of assets upon which development depends. Armed with this information, decision makers can direct the development process toward sustainable outcomes.

This analysis looks at the levels of “intangible wealth” that is embedded within human and institutional capital. The US is found to have $418,009 in intangible wealth per capita (comprising 80% of our real capital stock). That means, simply by stepping within the borders of the United States, human productivity is enhanced by this massive stock of wealth embedded in our people and our societal institutions. By contrast, China has just $4,208 per capita (comprising 55% of the total wealth stock).

Now, despite the obvious material living standards present in the United States, access to intangible capital totaling more than 99 times the amount available in China, comprises a vast gain in human welfare for each and every person who comes to the United States to live and be educated.

Finally, from a societal standpoint, having more immigrant workers increases the real wage rate for most people in the US. Not only that, but it because of the increase in marginal productivity of the Chinese worker (assuming that a non-trivial sum of people will return to China), this will increase the wages of Chinese workers — which, in turn, will increase the demand from China for US-produced goods and services. A greater supply of future labor is very important to the future of the wealth creation (and thus, the welfare state), as is evident by Japan’s aging population.

So, let’s overcome this roadblock…

There is one hitch. Under State Department rules, foreign students can attend public high school in the United States for only a year, a system that Dr. Smith considers unfair, given that they can attend private high schools for four years.

…and make a real Pareto improvement in the lives of people around the world. Most of all, the lives of these prospective Chinese immigrants.

To end, a quote from Terry Given, an English teacher:

“I don’t want to sound flip,” Ms. Given said, “but why not? We won’t know until we get the opportunity to know them and give them the opportunity to know us. There’s something to be said for putting ourselves out there to see if we can be the prize that’s claimed.”

Amen.

Karl does not like karma. Now obviously, being the anti-theist that I am, I don’t believe that there is a benevolent god dishing out karmic punishments and rewards…nor do I think there is a necessary causal link between actions in your social life, and haphazard physical consequences (i.e. helping an old lady across the street, and then finding five bucks…or yelling at your sister, and then stubbing your toe on a chair).

Karl is quite right that human lives are basically a fight against entropy, in which entropy always eventually wins. We strive to use energy inputs to create fit order (which of course, is called “wealth” in economics), in order to escape griding poverty. And in order to maintain such a regime, we need a constant influx of energy inputs and a constant outflow of waste. If these conditions aren’t maintained, everything falls back into a disorder and disarray…most of the population on earth dies, and all of our crowning achievements whither away.

However, this fact need not lay waste to the entire concept of karma. Due to the nature of our societal setup, there is ample opportunity for repeated interaction. This is what I view as the key to the concept of karma. In a world where there is no repeated interactions with people, then there is no need for the concept, as your past circumstances are unknown upon future interactions. Because our society offers ample opportunity for us to repeatedly interact with multiple groups and individuals. Thus, our past actions have a causal link to future interactions.

For example, imagine Robinson Crusoe and Friday are stranded on an island in which they are forced to interact daily. The probability of friendly our hostile interaction is directly related to the results of past interactions. Thus, if Crusoe stabs Friday, he increases the probability that Friday will respond with either violence, or avoidance. One can imagine extrapolating this simple model into a society with multiple complex interactions, and see how someone who always acts in a way that is hostile toward people would end up living in a world where he/she was either under constant threat of retaliation, or seclusion. This may seem like just desserts doled out by a just god…but it is really just the sum of all of the interactions people have.

Ostensibly, we are all perceived to be “mean” to some people, and “nice” to others…most people work to gather and groom a social network, and human interaction is of course very complex, so the probability distributions are never nice and tidy…and are generally always in flux. However, it is a useful way to think somewhat scientifically about a popular moral concept.


P.S. One note about the Tea Party’s notion of economic “fairness”. It is generally a conservative attitude that through grit, determination, and hard work; a person will be able to pull themselves up by their bootstraps into a higher income and better life. However, as liberals like to point out (and often oversell), mobility is oftentimes lower than what intuition tells people. Tom Hertz of American University produced a study (PDF) of income mobility in America which is actually pretty good. What it shows is that mobility within the middle class is often exactly what intuition would tell you…but mobility out of deep poverty, and into the highest echelons of wealth are much, much less than popularly perceived.

That mostly happens to be a lottery, however in a study named “The Apple Doesn’t Fall Far from the Tree” (gated), the team of researchers found that there is a high correlation in pro- and anti-social behavior between parents and their children. It is my opinion that success is often attributable to the (often inadvertent) learning and second-nature understanding of social norms of behavior. These norms are not the same for each societal class…and to have any hope of breaking into a different class, these norms have to be mastered. I’m sure you’ve heard of the contempt of “old money” to the “newly-minted wealthy”. This gives people who have grown up imitating these values a home-field advantage. It is also why the “middle class” is a relatively mobile section of the income distribution — middle class is a very large range of incomes, for which similar values hold.

So in short, I tend to agree with Matt Miller (with whom I rarely agree) that the type of society we should try to build should give maximum equality of upside opportunity combined with a downside safety net. The idea being that (as a society) it is in our interests to have a lot of wealthy people…so it would benefit everyone to help the poor get rich, rather than economically punish the rich. The structure of private/public interaction in this setup is something that I’m sure I’ll differ from many on the left.

P.P.S. I’ve always struggled with the question of “fairness” of economic outcomes. Are there any “fair” economic outcomes? What would constitute such? Is the the completely wrong question to be asking? I kind of think so, but I’d be interested in hearing what you readers have to say on the subject.

I’ve never really written about a large-scale report before, but I was recently sent a report from The Economists’ Intelligence Unit entitled “Women’s Economic Opportunity”. I’m not sure if it is online, so I don’t have a direct link to it…but I will update with a link when I find it.

The report was written by Leila Butt, with Leo Abruzzese, William Shallcross, and Mike Kenny. It uses a model developed in-house to analyze the economic opportunity afforded to women in multiple countries across the globe. It is a truly interesting study, and I’ll highlight some interesting findings.

There are four categories which the authors use to gauge the economic opportunity women have in various countries:

  • Labour Policy and Practice.
  • Access to Finance.
  • Education and Training.
  • Women’s Legal and Social Status

The index breaks new ground by focusing specifi cally on a country-by-country comparison of economic opportunities for women, going beyond a measurement of gender gaps. For that reason it includes an assessment of the national business environments in which women must function. The index also builds on well-established legal codes, such as the ILO’s annual evaluation of equal-pay conventions; in this case, the project team created a scoring scheme based on the ILO’s written assessments. Entirely new qualitative measures were also created, including an Economist Intelligence Unit assessment of whether customary practice overrides statutory law in matters of gender equality, specifi cally in property ownership. Owning property can increase a woman’s access to credit, and may confer broader social and economic benefi ts, including enhanced food security, wealth, authority and a greater propensity to make investments in land or property.

Using their model, the EIU finds (perhaps unsurprisingly to some) that the Nordic region tops the list, with nearly every country in the region appearing in the top 20 overall, and most in the top 10. I recently had a Twitter conversation with Matthew Yglesias about this issue. Matthew attributes the higher prioritization of feminine values in these countries to the fact that they have strong feminist movements. However, I take the (probably unpopular) view that a formal “feminist movement” is the effect of a deeper cause, and the relative strength of the feminist movements in these countries (which are all strong welfare states) is a function of the relief of the extreme masculine values inherent in the money system we use (strongly competitive, positive interest rates, fostering concentration).

In any case, here are a few things that popped out at me:

In Lebanon, for example, women cannot be employed in sectors involving metal work, alcohol production, tanning, butchering and mining. Thailand prohibits women from work that entails driving or operating a vehicle, using vibrating machinery and engines, and working on a boat, among other limitations. In Morocco, women cannot hold posts in certain ministries (the Ministries of Interior, Civil Protection, National Defence and National Security).

Also among significant labor market restrictions (which may be seen as compassion, but almost surely come down to protectionism on the part of men):

  • 33% of total restrictions in all countries are restrictions on the lifting of heavy weights, arduous work or labour beyond a woman’s strength.
  • 24% of total restrictions were restrictions on working in mines, quarries, underground or in water.
  • 4% of total restrictions were restrictions on working with hazardous materials.

Also, Europe, and northern Europe in particular, are especially generous when it comes to maternity leave. Interestingly enough, there is a popular trend among start-ups (especially social media) in the United States (which doesn’t seem to be true in Europe, but I don’t know) of offering unlimited vacation. Something that codification may hamper.

Another very interesting fact is that access to credit in Europe is comparatively poor, the graph is of the entire population, but obviously the total amount of credit coverage will affect women as well — and perhaps even more. There is a lot of data out there regarding credit and the poor, and restricting access to credit (as is common in Europe, through indirect means) restricts opportunity.

However, there is large disparity in the amount of private financial services offered a post offices between the Americas and Europe, with about 5% of countries in the Americas offering such services vs nearly 68% in Europe. The United States is not among those countries. However, initiatives to this effect are popular in South America:

In Brazil, the federal postal system has forged an agreement with Banco Bradesco—one of the four largest banks in Brazil—to set up and operate banking branches in post offi ces. In an effort to tap the large portion of the population that does not have bank accounts—estimated at some 40m Brazilians—Bradesco launched its Postal Bank project in 2002. It had set up 6,067 outlets in post-offi ce branches by end-2009, up from 5,946 outlets at end-2008.

Egypt Post is one of the country’s major savings institutions. Postal savings accounts can be opened for just E£10, making these accounts an attractive savings method for low-income citizens. Interest on money deposited with the postal authority is exempt from tax. Each post offi ce holds an account at the National Investment Bank (NIB), where customers’ savings are placed. In recent years, Egypt Post has started offering services in competition with the banking sector, such as high-yield deposit accounts, ATMs and payment systems for fi rms. Additionally, Egypt Post has expanded its physical presence, with around 3,700 locations.

In contrast, the United States actively restricts financial service competition.

The study is very thorough and well done, although I’m not the most comfortable with the de facto implication that public policy specifically targeting women is the answer. However, it will be interesting to follow this index, and see how it evolves throughout the world. There are plenty of places that are very discriminatory toward women in the world…and they happen to be disproportionately poor. As they gain in wealth, women will obviously have a better chance at equality with men — and perhaps studying countries on this list from a more microscopic point of view will lead to better public policy, and thus outcomes for women…which, of course, benefits everyone.*

Thanks to the authors for sending me a copy of the report, and I apologize that this write-up took so long!


*Except the unborn.

P.S. Flickr’s new interface is the height of annoyance.

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