priorities for helping humanity

Bjorn Lormborg isn't against reducing man's carbon footprint, but -- like me -- he just thinks that the proposals bandied about cost too much given other available choices for helping the world's worst off. The Copenhagen Consensus ranked a list of solutions to the world's problems based on their cost and estimated benefits. The Copenhagen Consensus was originally sponsored by the Danish government and The Economist to assess proposals to advance global welfare under the stewardship of Lormborg, a Danish economist. There have been two rounds of discussion by the group -- which invites the world's top economists to participate (five Nobel laureates this year) -- the most recent in the spring of 2008.

Lormborg recently penned an opinion piece for the WSJ answering the Copenhagen Consensus' question, "How to get the biggest bang for 10 billion bucks." You can also watch his past Ted talk below for an introduction to his work, and read more (link also appears below the video) for a few select factoids from his work. Lormborg is something of a controversial figure, because of his skepticism regarding the global warming movement, but if you watch the Ted talk and read what he has to say, I think you'll agree that he is very intelligent and very reasonable.





Of Lormborg's top five priorities to improve global welfare, three address malnutrition, one disease, and one trade. At the bottom of Lormborg's list (of 30 priorities), two fall under global warming, two under pollution, and one under disease.

What's number one?

"Providing micronutrients -- particularly vitamin A and zinc -- to 80% of the 140 million or so undernourished children in the world would require a commitment of just $60 million annually, a small fraction of the billions spent each year battling terrorism or combating climate change. The economic gains from improved productivity and a lower burden on the health system would eventually clear $1 billion a year. Every dollar spent, therefore, would generate economic benefits worth $17."

I'll leave you with Lormborg's take on the current environmental proposals, which I largely agree with:

"If mitigation -- economic measures like taxes or trading systems -- succeeded in capping industrialized emissions at 2010 levels, then the world would pump out 55 billion tons of carbon emissions in 2100, instead of 67 billion tons.

This is a difference of 18%; but the benefits would remain smaller than 0.5% of the world's GDP for more than 200 years. These benefits simply are not large enough to make the investment worthwhile.

Spending $800 billion (in total present-day terms) over 100 years solely on mitigating emissions would reduce temperature increases by just 0.4 degrees Fahrenheit by the end of this century.

When you add up the benefits of that spending -- from the slightly lower temperatures -- the returns are only $685 billion. For each extra dollar spent, we would get 90 cents of benefits -- and this is even when things like environmental damage are taken into account.

A continued narrow focus on mitigation alone will clearly not solve the climate problem. One problem right now: Although politicians base their decisions on the assumption that low-carbon energy technology is being rapidly developed, that is not the case. These technologies just do not exist. Wind and solar power are available -- at a high expense -- but suffer from intermittency. Researchers need to develop better ways to store electricity when those renewable sources are offline.

If we took that $800 billion and spent it on research and development into clean energy, the results would be remarkably better. In comparison with the 90-cent return from investing solely in mitigation, each dollar spent on research and development would generate $11 of benefits."

As Lormborg emphasizes in the Ted talk above, it's time to stop conflating goals and proposed solutions. You can believe that it's important to save the environment and still think the Kyoto Protocol is a waste of resources. Pumping funds into R&D will be a lot less visible and might give us a less fuzzy feeling than taking Hummers off the road, but that doesn't make it the wrong choice.

Returning to Lormborg's number one priority, if anyone has information on well-run programs to distribute micronutrients (e.g., vitamin A) I would love to check it out. Read more!

Past 100 years of human development

Hans Rosling is the creator of gapfinder.com, a tremendous resource for global statistics, ranging from public health to economic development. I highly recommend checking out the website, but first, watch his Ted Talk below, where he uses the gapfinder visual statistics to explore the past 100 years of development -- keep watching until he makes an excellent point about the distinction between excellent goals and excellent means to those goals (human rights= great goal, bad means; economic development=great means, bad goal). Frames the issue very well. I also like his comments on how every actor in the global development debate thinks *THEIR* area is both the most excellent goal and the most excellent means (e.g., NGO thinks gender rights is tops, health analysts thinks health is tops, etc. etc.)
Read more!

drew carey on mexicans, machines, trade

I can post a hundred articles on why its wrong to slam trade for job losses or general economic woes, but a well-made, entertaining 7-minute clip is probably more likely to open some eyes. I never knew Drew Carey was capable of this, but he clearly has found a role that utilizes his talents well. Share this with your buddies.

Read more!

letter to the editor: creative capitalism

One of the more interesting web experiments I've come across recently is a new blog titled Creative Capitalism: A Conversation, which truly is a blog conversation "designed to produce a book -- a collection of essays and commentary on capitalism, philanthropy and global development -- to be edited by us and published by Simon and Schuster in the fall of 2008." The blog features economic luminaries such as Richard Posner, William Easterly, Gary Becker, and more, and the idea for creative capitalism emanates from a speech given by Bill Gates at the World Economic Forum at Davos.

I recently learned that a letter I wrote to the editors will be included on the site within the next week, so I thought I would provide my fiercely loyal readership an early glance. I will offer a disclaimer that I likely should have added to the original letter -- the idea expressed in the latter half is meant to be a discussion point, not an endpoint. My impression from Gates' speech was that he wants capitalism to search for new ways to serve the needs of man, and that's the spirit in which I wrote this letter.

The creative capitalism blog can best be described as working group of top economists assigned two tasks: clarify what exactly creative capitalism entails, and debate its relative merits. Of course, an economist would wisely note that the dialogue's production would be greater if it specialized in answering one question at a time. The conversation is certainly a bit confused. One moment, Bill Gates and Warren Buffet are talking about the positive impact on profits of cause branding. A post later, the discussion centers on supporting causes that simply reduce revenues. In the next breath, Milton Friedman is arguing that capitalism has more social benefits than creative capitalism.

What question is the project answering again? Depends on the monologue you're reading. I might be so brazen as to suggest that the dizzying directions this discussion has taken indicate that a bit of top-down coordination might better utilize the immense human capital brought to bear on these issues. But I am but a poor part-time blogger, so I will join the chorus with my own interpretation of "what creative capitalism means to me ..."

Many libertarians would agree (looking at you, GMU) that increased competition for government services would be a good thing. We simply haven't figured out how to do it yet (problems of jurisdiction and spatial sporting come to mind). When I think of creative capitalism, I consider the opportunity to take the corporate model as the foundation for the voluntary associations that Alexander de Toqueville described in "Democracy in America."

When liberals ask the country to come together to tackle a social injustice, market enthusiasts counter that liberals should turn to personal charity. Yet the market enthusiast's response fails to provide a viable alternative to the liberal's public programs. The "charity" market is poorly defined, suffers from serious asymmetry of information, and a lack of coordinating institutions. Yes, this is partly because the government has crowded out private charity with its large programs. But still the market enthusiast will convince few liberals to disband the public safety net by asking them to have faith that the market will immediately respond with equal or better charitable services. In fact, without well-designed institutions, oversight, and coordination mechanisms, I think liberals are right to not rely on private charity to tackle social problems, even when compared to the wildly-efficient public systems.

But there is hope. Consider the industry titans modern feudal lords, forced to subsidize the wasteful public programs of the King. Their only hope is to create a parallel system of public programs that are more effective than those of the King. People want public services. If creative capitalism can provide these services, they can displace government services. Tocqueville saw the great strength of America in her civic associations. The federal government has grown so large so as to crowd out many of these ventures, and it will take the action of independent pillars of wealth, such as Bill Gates, to provide an alternative vision that liberals can believe in will better serve the needs of humanity.

To view creative capitalism as simply a value-destroying concession is to ignore the quiet competition between the private and public systems for satisfying the desires of the masses. The question is whether voluntary associations are up to the task. Surely, with friends like Gates and Buffet, the financial resources are there, but where's the vision?. Read more!

what makes a just nation-state

This post follows the utility of the nation-state in exploring the importance of properly defining fairness, a concept that weighs heavily in most discussions while rarely being explored on its own merits.


At some point, a nation ingrains a conception of fairness in the national fabric, most often in the constitution itself. I think many would refer to this as the "social compact." Europe emphasizes distributive justice among citizens, both increasing the possibilities for the worst off among their citizens and decreasing the opportunities for those branded outsiders.

Some of those outsiders headed to the New World looking for a type of fairness very different from that found in Europe at the time, or, for that matter, in modern Europe.

The Statue of Liberty stands a testament to that uniquely American ideal: "Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore. Send these, the homeless, tempest-tossed to me. I lift my lamp beside the golden door."

The American Dream was characterized not by distributive, but procedural justice. Each person would be given the same opportunity regardless of their ethnicity, religion, creed, etc. Talent and hard work would determine how far you'd go in life, not whether you were Catholic or Protestant or born from "proper stock" or any other determination of what was a "proper citizen."

What's happened since then?

Well, the frontier's been settled. The moment the Italian no longer considered himself an immigrant he spat upon on the 'Irish dogs, who, in turn, cast a wary eye and a perjorative slur at the Mexican.

Yet despite the natural human inclination to protect one's kin and consequent belief in the "defective moral quality of being a stranger," the American notion of procedural fairness has remained remarkably resilient.

Despite nativist attacks at nearly every stage in American development -- from the Know Nothing Party to Lou Dobbs -- immigrants continue to flock to the United States and power American development and innovation, from the atom bomb to Google.

The United States has ridden the creative powers and hard work of the "poor and huddled masses" to a level prosperity unmatched in the history of the world. The American social compact is to be credited.

Yet societies have remarkably short memories, and apparently a 305-foot high statue warmly welcoming the world's "wretched refuse" in the nation's richest city is not enough to remind Americans of how the US developed into an economic titan.

The trouble is that energetic, hard-working immigrants eventually have kids. Some of their kids will keep their parent's spirit, most will not. While the immigrants who venture to the US leave behind their lazier and less talented brothers and sisters, there is no self-selection mechanism for those born in the US.

While that may sound in bad taste, it's no different than the way we talk about being born into a rich family. While the original entrepreneur was likely hard-working, there's no reason to suspect the same of their children.

The American paradox is that we all want to be treated fairly as we grow up (procedural justice), and then we all want our children to receive the best treatment available even if they don't deserve it (distributive justice).

Who loses?

Well, who would have lost if the Know-Nothings successfully closed the door on Irish immigration, or if the racists in California had succesfully shut the door on Japanese immigration?

Clearly, the immigrants themselves would have lost dearly, as well as their children, and their children's children. In addition, the children and great grandchildren of the earlier Americans benefitted as well, as dynamic labor markets spurred on the creation of new industries and created new jobs and opportunities for all Americans. Yet in both cases loyal Americans tried to slam the door in the face of these immigrants in defense of what they perceived as the American interest.

The trouble is that it's only easy to see the benefit of immigration 100 years later, removed from the emotional tug that drags down most political discourse. It's hard to put much weight in the positive externalities of productive new immigrants if you think things could be better in your life at that moment ("My son lost his job + I see a lot more Mexicans around + They have jobs = they took his job.")

The changing economic dynamics of the 21st century once again raise the question, what kind of country should America be? Should it be a nation-state in the static European sense? An exclusive club that sets up barricades and pampers its few members? Is distributive justice the next step?

Clearly, I don't think so. I don't think it would be healthy for America in the long run to choke off her access to fresh ideas and hard work, and I don't think it's just.

The United States is not, and should not be static, like a France or Germany. It should be dynamic and everchanging, a whole composed of parts bound not by blood but belief in a fair shake. That's not to say we need be as superficial in our understanding of procedural justice as our ancestors. We can still admit we have a lot to learn from Scandinavia while staying loyal to procedural justice. How we can do so is a subject for another post. But our core strength lies in equal opportunity, and we'd be wise to focus discussions of justice within that paradigm, rather than the distributive justice of our country-club cousins in Europe. It's both in our interest and more helpful to the disparate. Read more!

gentrification, sprawl and city failure

How about those for buzz words?

Gentrification is an object of hatred on the left because it is viewed as a source of added suffering for those already poorly off. While I agree that the byproducts of gentrification are certainly unfortunate, I think the gentrification opponents are wrong in identifying gentrification as a source, rather than a symptom, of a deeper problem.

(Related Jane Jacobs posts: the poverty trap, borders)

Gentrification, like city overcrowdedness in general, is a symptom of "the demand for lively and diversified city areas [being] too great for the supply." The problem isn't too much gentrification, it's too little city. I'll join Jacobs in stating, "The sheer supply of diversified, lively, economically viable city locations must be increased."

The immediate response to this proposition would rightly be skepticism -- why hasn't city supply grown with demand?

Hypothesis: well-intentioned (giving the benefit of the doubt...) government intervention has stunted city growth over the past fifty-odd years, creating a large "city deficit."

It's economically advantageous to live in large concentrations, which is why cities evolved in the first place. Yet the wealthy left... Why?

One of the myths is that the wealthy turn and ran of cities because of a fear of black people, or something similar; this is mistaking cause and effect, the wealthy left because a large carrot was dangled in the suburbs, housing prices were then depressed, and in move poorer folks, including a large population of minorities. Just look at two of the signals the government sent post 1950:

• Brand new interstate system: Made it cheaper to live further away from economic cores
• Juicy government-guaranteed home mortgages: Rent in New York or own at a bargain price in a suburb? (I think this is the key...)
  

It would be incorrect to say that government-subsidized sprawl is a 20th century innovation. The West was settled because the government provided incentives ("you stand on it, you own it") to leave the big cities.

The product of this sprawl has been a great deal of economically-depressed dead space. I won't complain about how the earlier government subsidies played out -- California, for all it's crazies, has been a huge economic advantage and while it took a questionable Mexican War to obtain continental integrity, we likely spared a couple more wars by preempting the possibility of a European/Asian presence on the left coast.

But the 20th century subsidies are much more questionable. Beyond the city crunch, the reason we drive cars so much is because we have to, because everything is so spread out in the US. Don't blame GM, blame the national sprawl.

Correcting deficits is never painless, and the dislocations brought on abrupt gentrification of city areas (UWS of Manhattan) and total city cleanup (is Newark a good example?) are the products of the market looking to correct what the government screwed up.

As Paul Krugman notes here, the fuel crunch is making our sprawl even more economically painful.

To conclude, greater concentrations of people are more productive than sparsely populated areas. Rather than help our cities grow, government planners have systematically driven individuals away from our economic hubs, lowering economic productivity, and greatly increasing the difficulty of managing overcrowded cities. Finally, I'll add that before reading Jane Jacobs' book, I agreed with the "widespread belief that Americans hate cities" -- the dirtiness, poorly functioning transportation, etc. all bother me -- but I've come to agree I, like most Americans, really only "hate city failure." Presently, the city is like a company's first store, which is filled with customers who want to use the store, but can't even fit through the door. The problem isn't the store, it's that there isn't enough store. Read more!

work in the 21st century

The American job market has changed dramatically over the past fifty years as the cost of transportation and communication has decreased and the capacities of other nations have grown. This transformation has been accompanied by a rise in overall wages, but growing inequality. This inequality has been attributed to everything from tax changes, destruction of unions, Reagan’s slashing of social programs, the proliferation of single-parents households, immigrants, and rent-seeking by the rich at the expense of the poor.

While these factors may play a secondary role, Robert Reich properly attributes the gap to a change in the returns on human capital. In the mid-latter half of the 20th century, the wage premium that a college degree commanded was much smaller than it is today. According to Reich’s aforementioned book, a high school graduate earned ~$32,000 (1987 dollars) in 1973, and $28,000 in 1987. Meanwhile, a college graduate earned 80% more than his high school counterpart in 1980, and nearly doubled that by 1990.

Inequality is growing because the market for labor is changing. The assembly-line worker was paid X because his input was worth X, given the fact that these large corporations needed a great deal of simple human input – and it needed to be American – to produce and distribute their product at a high volume. Human labor wasn’t a commodity because the supply of labor was limited by geographic location.

Technological developments have both directly (replacing men with machines) and indirectly (lowering the cost of doing business across oceans) rendered the high-school graduate a commodity. If all you can do (with your current training) is effectively follow orders, you will compete with both billions of other human beings and machines (either that currently exist or could be developed cheaply relative to your salary.)

I don’t want to pigeon-hole this phenomenon as strictly a “high-school graduate” thing. It’s not about education, per se, it’s about the reproducibility of the work. From textiles to tech support to pathology, if the work is simply applying an existing solution to a straightforward problem, the value of the work is plummeting. This decrease in value is generally leading to a decrease in wages, though the workers are doing their best to secure wages that are higher than the value of their work.

Reich divides the labor market into three types of jobs:

• Routine productive services (e.g., data entry): Low pay, can be outsourced, primarily value is hours put in to work
• Interpersonal services (e.g., cleaning lady, acting coach): Similar to routine services but pay ranges widely, can’t be outsourced, pay reflects both hours and assessment of quality of work
• Symbolic analytic services (problem “solvers, identifiers, brokers,” e.g., consultants): Can be outsourced, Value-based payment (rather than time)

The last group, symbolic analysts, is the “creative class” about which Richard Florida writes, though not all symbolic analysts are professionals, and not all professionals are symbolic analysts (this cannot be overstated). A secretary can be a symbolic analyst, and a manager can be a professional, but not a symbolic analyst. The old categorizations of types of work are no longer applicable.

Reich labels this group symbolic analysts because they simplify reality into abstract symbols, which they then can manipulate, and translate back into reality. The return on this skillset has exploded because its value to enhancing productivity (however that is defined) is unparalleled. In the 20th century, mastery of knowledge, accumulated through experience or study carried a high value, as the supply of people with such knowledge was limited. Now, that supply is much less limited.

Knowledge isn’t a commodity, but it’s value is falling as it becomes less scarce. Meanwhile, the value of understanding how to use knowledge to increase outputs has increased as the potential payoff becomes bigger.

Knowing is cheap. Understanding is expensive. The premium is placed on brokering solutions by identifying and/or solving problems.

Reich estimates that symbolic analysts made up 8% of jobs in 1950, and 20% in 1990. After the dot-com revolution, I can only imagine that number has grown.

This shift in labor value has been jarring for many Americans, who are ill-prepared to compete for wages based on value-added by their labor, rather than simply time spent at work. Those Americans are seeing their wages stagnate, jobs disappear (mechanized/digitalized/out-sourced). The days of factories full of high-paying manufacturing jobs are gone forever. The question is how to respond to this change in economic dynamics. In a future post I will look at what Reich proposes, and where I think he goes astray. Read more!

one point for social cripples

While searching the internets for results-driven philanthropic efforts, I came across a Wired magazine article by Clive Thompson on "why we can count on geeks to rescue the earth." Thompson is interested in why Gates, "practically a social cripple, and at times he has seemed to lack human empathy" is the "first major humanitarian to take action" against malaria, diarrhea, and parasitic infections, all of which "flew under the radar of philanthropists in the West."

The answer? Gates has been the first to target the world's biggest and most preventable killers not in spite of his social backwardness, but because of it -- "He's also a geek, and geeks are incredibly good at thinking concretely about giant numbers."


Thompson argues that this analytical ability is a particular advantage in philanthropy because of a cognitive failing ingrained in most human beings -- "We are very good at processing the plight of tiny groups of people but horrible at conceptualizing the suffering of large ones.
...
We'll usually race to help a single stranger in dire straits, while ignoring huge numbers of people in precisely the same plight. ... We'll break the bank to save Baby Jessica, but when half of Africa is dying, we're buying iPhones."

This isn't idle speculation. Psychologist Paul Slovic has explored this cognitive failing, including one experiment in which "people were asked to donate money to help a dying child. When a second set of subjects was asked to donate to a group of eight children dying of the same cause, the average donation was 50 percent lower."

Gates' ability to think concretely about big numbers enables him to "truly understand mass disease in Africa. We look at the huge numbers and go numb. Gates looks at them and runs the moral algorithm: Preventable death = bad; preventable death x 1 million people = 1 million times as bad."

Thompson concludes his piece:

"We tend to think that the way to address disease and death is to have more empathy. But maybe that's precisely wrong. Perhaps we should avoid leaders who "feel your pain," because their feelings will crap out at, you know, eight people.

What we need are more Bill Gateses — people with Aspergian focus, with a direct sensual ability to understand what a million means."

That is a terrific advantage if you actually can "understand what a million means" -- I can't -- but I think Thompson is ignoring the power of being aware of that cognitive failing. Your instinct is likely to turn out of a skid, but once you are aware of that instinct and its negative repercussions, you can alter your behavior through purposeful thinking to create a better end.

Overall, I am happy to find an article exploring the negative effect of cognitive bias on philanthropy. I am researching the world of philanthropy in hopes of identifying low-hanging fruit (such as malaria, diarrhea, infectious disease) that take only a little investment for a large payoff.

What is interesting is that early results would suggest the problem isn't necessarily a lack of available philanthropic capital, but a fragmented market of NGOs with unclear objectives, little accountability, and varying visibility.

The answer might not be more money, but structural changes to the way NGOs execute the business of doing good. We'll see.
Read more!

poor and huddled masses

Kevin Mawae is sick and tired of being confined to the lower class. He's worked for 15 years in a gritty industry and is tired of watching flashy prodigies get huge salaries that he could only dream of, despite being among the best at his job. Like most people in that situation, he wants to do something about it. He wants to limit the salaries and bonuses of that higher strata of workers. As it is, the current system of financial reward simply isn't fair in the mind of Mr. Mawae.

The catch?

Mawae is an offensive lineman for the New York Jets, and in 2002 made more than $9 million as the highest paid offensive lineman in the league. Yet the aforementioned sentiments are very real -- Mawae is upset with the contracts first-round picks are getting nowadays, specifically BC alum Matt Ryan's six-year, $72 million deal.

"I know there is sentiment around the league amongst the players like, 'Let's do something to control these salaries and control these signing bonuses' and things like that," said Mawae.

I'm reminded of a quote from P.J. O'Rourke that Greg Mankiw recently cited:

"I have a 10 year old at home, and she is always saying, “That’s not fair.” When she says that, I say, “Honey, you’re cute; that’s not fair. Your family is pretty well off; that’s not fair. You were born in America; that’s not fair. Honey, you had better pray to God that things don’t start getting fair for you.”

I think there is something telling in Mawae's reaction to the Ryan contract. He wants fairness, but his conception of fairness extends only so far as he would benefit. You don't see Mawae admitting that his salary should be controlled to better serve fairness.

The consultant who's watching the Jets in the stands feels the same way about rookie contracts as Mawae, but not simply about rookie contracts, but Mawae's contract as well.

The low-skilled worker feels the same way as the consultant, but not simply about football contracts, but about the prosperity enjoyed by college graduates as well.

Of course, like Mawae, the low-skilled worker may be treated "unfairly" relative to some, but if he were to be treated fairly along with low-skilled people all over the world, he would not like the result.

I think this story is helpful for the greater discussion of poverty. Liberals still stick to their guns with "relative poverty" indicators, so that a person in the US with a car and a microwave is labeled "poor," the same as if he had malnutrition and a life expectancy of 40 years in a developing country living on less than a dollar a day.

The Mawae story is relevant because it demonstrates that there is no magic dollar figure when an individual ceases to believe he is not being rewarded fairly; pursuing the end of relative poverty is chasing a ghost. If we could somehow snap our fingers and the world's citizens were paid like NFL players, people would still think there were significant "relative poverty" wrongs that must be righted.

In this worldview, lowering the well-being of others, the redistribution of poverty, is a victory. When Mawae goes to the bargaining table with the owners, he has stated he will look to stop these high rookie salaries. Will he benefit at all? Likely not, it will simply mean more money for the owners.

When it comes to millionaire football players, who cares if they screw the pooch. The problem is when this same attitude leads individuals to throw away large pieces of the general economic pie because of petty jealousy and envy. The socially just shouldn't be trying to turn princes into paupers in the name of relative-poverty justice. Justice isn't relative.

Update: How does this relative poverty argument play out in the real world? Consider this article, Has Ireland’s Rising Tide Benefited Its Poor? Within, Lane Kenworthy explains how poverty is "on the rise" in Ireland according to standard indicators, despite the fact that the poorest Irish are better off now than they have ever been. Kenworthy offers a worthy substitute for the current relative poverty indicators -- income at the tenth percentile of income distribution; in other words, how much better or worse off are the lowest 10% of income-earners in a given area. Given this indicator, Mawae, the low-skilled worker, and the Irish would all see that their well-being has improved greatly over the past 10-20 years, even as "relative poverty" has grown, allowing us to focus our attention on the genuinely poor and huddled masses.

Read more!

learning from jane jacobs: the poverty trap

Paul Collier, author of The Bottom Billion, and Jane Jacobs, author of The Death and Life of Great American Cities, are both careful to differentiate between slums and low-income areas. While Collier and Jacobs' focuses of study differ (far-away nation-states vs. local ghettos) , they both arrive at the same conclusion -- certain geographic areas are caught in poverty traps that prevent the people therein from enjoying any improvement in well-being or opportunity without moving out. Unfortunately, I have only sparse, disjointed notes from the Collier book at the moment (a mistake I must rectify...), so this post will focus on Jacobs. And while I probably should ignore the easy Thomas Friedman diss, I can't help myself -- once again, the world is not flat, geography is still very important to billions of people.

Jacobs describes the American slum as "a human catch-pool ... that breeds social ills and requires endless outside assistance." Slums are notable by their "stagnation and dullness" and "[failure] to draw newcomers by choice."

Jacobs defines a slum as "an area which 'because of the nature of its social environment can be proved to create problems and pathologies,'" which is different than "'a stable, low-rent area.'" The difference is that citizens are able to "make and carry out their own plans right there" in low-rent areas, but not slums. Low-rent areas help their denizens improve their lot in life, and generally eventually become higher-rent areas, not so in slums.

In slums, high-achieving families are driven out (perhaps because of the unsafe streets, lack of available financing for low-income areas, etc.), acting to reverse natural selection for slums. Herein lies the poverty trap at work -- a negative feedback loop that prevents the area from enjoying the positive externalities of economic development.

I'm reminded of a shallow pool of standing water, breeding disease and poisoning those who drink from it. Except most pools evaporate or are washed away; in the slum, the forces that would purify the water source through dilution or some other manner simply leave -- the pool persists.

Part of this negative feedback loop is the lack of social fabric, which only gets worse over time as more and more people act without accountability. Normal state policing can never reproduce the social control a community needs, the community itself must (and indeed the non-slum does) provide a check on illicit behavior, generally without anyone noticing they are a part of this self-policing effort. No such internal check exists in slums. In fact, the opposite occurs; the city continues to act as a conduit for its denizens to cooperate, but to destructive, rather than productive ends. The narc, rather than the drug dealer, gets ratted out.

What are the constraints that trap slums? The most glaring is safety. Just as commerce across the seas has depended on safe seas, so does city commerce depend on safe streets. The analogy extends even further; just as sea trade amounts to a competition between productive forces of exchange and destructive forces of extortion for dominance, so does street life.

The productive forces (often taking the form of bodega owners or other local shops) must make the streets "lively enough to be able to enjoy city public life and sidewalk safety." Jacobs argues the key is to generate productive activity through the stimulation of commerce and cross-use to tip the balance of local power in favor of those who desire peace and commerce. The competition is complex, and the failure of good men and women in slums is a reflection less of their intention or ability than it is of the greater failure to comprehend the specific constraints that are preventing a community from concentrating productive individuals (e.g., is it isolated from the productive outsiders needed for development, does low-income housing push individuals out of the community who reach a certain level of success, is the entry barrier so high that it precludes entrepreneurial citizens or outsiders from establishing themselves?)

Tangentially, I've come to think that 'trap,' while a useful term, may be less so than 'constraint' for economic development discussion. Collier's book categorizes constraints under: conflict trap, natural resource trap, the trap of being landlocked with bad neighbors, and the bad governance trap. While these terms are proper descriptors, they are not as actionable as, say, the market access constraint. We can't do much about a nation-state being landlocked, but we can enhance market access. Or take the natural resource trap; sure it exists, but wouldn't it be more worthwhile to deal more explicitly with the specific constraints produced by these natural resources? Read more!

workers are consumers, too

As the Democratic primary enters its fourth year, it’s as good as time as any to pay heed to the potential pitfalls of government intervention. Sure, it’s easy to see the appeal of the small local grocer and pharmacy over the Wal-mart behemoth. In addition, frustration with the destruction of local jobs, which has accompanied the gale of globalization and technological development, is understandable. But let us not ignore the benefits – and no, I don’t mean benefits that disproportionately benefit the most well-endowed with money and/or brains. Quite the contrary, some benefits concentrate in the lower economic strata, especially lower prices.

A recent article in the Economist documents the increasingly high cost of living in France, even when compared to (21st century) ally Germany: “A basket of identical items costs 30% more in France [than in Germany], says a study by La Tribune, a daily.” Efforts to inject greater competition into the marketplace have been stymied as “voters see competition through the eyes of producers—as a menace to jobs and factories—rather than consumers.”

Would you rather have the ~30 million Americans below the poverty line paying 30%+ for groceries to preserve the inefficient employment of a small subset of that population? The (il)logical conclusion of ‘producer preservation’ can be found in a story (lifted from Bryan Caplan article) about an economist who visits China under Mao Zedong. He sees hundreds of workers building a dam with shovels. He asks: “Why don't they use a mechanical digger?” “That would put people out of work,” replies the foreman. “Oh,” says the economist, “I thought you were making a dam. If it's jobs you want, take away their shovels and give them spoons.”

One of my favorites. Read more!

what to do in myanmar?

I remember speaking with some German friends a few years back about just war and objecting to their characterization of ALL military engagements as inherently unjust. The context was the war in Iraq, but we weren't discussing the wisdom of the invasion or the objective virtue of that particular engagement, but the potential for war to be just.

My stock scenario is the genocidal regime, which most people I talk to seem to agree justify the consideration of military intervention (the decision to actually intervene should also take into account the likelihood of success and potential fallout).

Romesh Ratnesar, over at Time, raises another scenario that might pass mustard with the peacenik crowd, or at the very least, make them acknowledge the terrific human loss that their international consensus politics and soft power allow to occur quite regularly. Ratnesar poses the question, "Is It Time to Invade Burma?"

I would rephrase the question; does the crisis in Burma warrant the consideration of military force to alleviate the crisis if need be? A less-appealing headline to be sure, but a bit more useful for our purposes.

Here are some relevant snippets from the article:

• "By most reliable estimates, close to 100,000 people are dead.
• "With as many as 1 million people still at risk, it is conceivable that the death toll will, within days, approach that of the entire number of civilians killed in the genocide in Darfur."
• "The military regime that runs Burma initially signaled it would accept outside relief, but has imposed so many conditions on those who would actually deliver it that barely a trickle has made it through."
• "The Burmese haven't shown the ability or willingness to deploy the kind of assets needed to deal with a calamity of this scale — and the longer Burma resists offers of help, the more likely it is that the disaster will devolve beyond anyone's control."
• "A lot is at stake here. If we let them get away with murder we may set a very dangerous precedent," says Jan Egeland, the former U.N. emergency relief coordinator.
  
• "Some observers, including former USAID director Andrew Natsios, have called on the US to unilaterally begin air drops to the Burmese people regardless of what the junta says. The Bush Administration has so far rejected the idea — "I can't imagine us going in without the permission of the Myanmar government," Defense Secretary Robert Gates said Thursday — but it's not without precedent: as Natsios pointed out to the Wall Street Journal, the US has facilitated the delivery of humanitarian aid without the host government's consent in places like Bosnia and Sudan.
• "If there were, say, the threat of a cholera epidemic that could claim hundreds of thousands of lives and the government was incapable of preventing it, then maybe yes — you would intervene unilaterally." But by then, it could be too late."
• "The world has yet to reach a consensus about when, and under what circumstances, coercive interventions in the name of averting humanitarian disasters are permissible."

Is there a difference in allowing hundreds of thousands to die from disease and hunger and outright execution? In some ways, yes, just as first degree murder differs from second and third. What is consistent in both cases is the preventable loss of human life.

Members of the international community have stated multiple times that state sovereignty extends only as far as the state's willingness (and I would add ability) to protect its people from preventable death.

The issue is that these pronouncements carry little weight. Soft power (which usually ends up meaning economic bullying) works very well for certain types of regimes, but incentives have their limits.

I'm not advocating military intervention in Myanmar. I am suggesting that you don't have to be a neocon to believe that the international community's ability to act through existing international institutions to alleviate large-scale human suffering and death is basically non existent, and it is unacceptable to allow these preventable real human tragedies to occur because of abstract notions of state sovereignty (I'd love to hear someone, anyone, argue that the Burmese junta represent the people) or international consensus (couldn't avoid a security council veto short of an alien invasion). We should reinforce the processes of international cooperation when possible and respect the people's right to self-determination, but we mustn't join our European friends in sacrificing the lives of others at the altars of multilateralism and state sovereignty.
Read more!

what jane jacobs can teach us: borders

Jane Jacobs wrote the book on city planning for the latter half of the 21st century, and it's yours for a little more than $10 at Amazon -- The Death and Life of Great American Cities. Need more convincing?

Jacobs has a little something for everyone, whether you're interested in learning about why a neighborhood is hip or dull, slums improve or decline, your university's neighborhood was so boring, border towns are wastelands, automobiles are so problematic yet important, visual perception affects city life, city planning and public spending failed miserably, different processes of scientific thought shape city policy, the role of economic development in city formation, and/or the role of city formation on economic development. (Exhale)

I'll have a series of posts bringing out some of her broader points that I think are applicable to not only cities, but economic development at home and abroad. First up, is Jacobs' treatment of borders, which for the most part refers to borders between towns, but I find quite applicable to most borders.

Dead End or Hub?

Border areas suffer from a lack of land use and circulation of people, which stimulate local growth and safety. Intensity is low because border areas are the last stops on the line, dead ends that inhibit individuals from traversing across the border area. These border areas suffer from "fewer users, with fewer different purposes and destinations at hand," creating vacuums that are typically unproductive and unsafe. Some borders allow traffic one-way (Arizona/Mexico), others see traffic, but only at certain times, but the effect is the same. Border areas are best served by making the border a "seam rather than a barrier, a line of exchange along which two areas are sewn together." It's not that border areas, or frontiers, are prone to blight and disuse. To the contrary, frontier areas are positioned to be uniquely original and creative thanks to cross-border exchange and ability to escape potentially crippling central oversight. Jacobs' insight is that the border areas have their fate in their own hands, at least to some degree. They can fade into disuse and disrepair as the last building in the dead end, or they can serve as a hub for interaction between both sides of the border. The potential for these areas cannot be overstated -- frontier cities are often the centers of the next empires. Historically, commerce, exchange, and the free flow of ideas and goods have been the keys.

Claustrophobic borders

Some areas are large enough and diverse enough to be productive and vibrant despite being cutoff by a border (though the smaller area specifically near the border won't be vibrant), but it becomes increasingly problematic when the neighborhood is too small to support itself as a district. This merries well with the literature I've seen with regards to small nation-states -- too small to support the diverse commerce needed -- damned to exist as fragments by borders which inhibit the pooling of human and financial resources needed to grow. What if Rhode Island had its own currency, tariffs and regulated employment visas for other states in 1960? Well, if you add in a bunch of poor, violent neighbors and make our little state a land-locked country with no history of effective governance and scarce resources you'd have Burundi, with a GNP per capita of about $90. Would the dissolution of borders make Burundi the center of an African superpower? Likely not, but it does serve as a barrier to the the accumulation of capital -- financial and human -- needed to escape the poverty trap.

Minor internal borders as wasteful barriers

Jacobs has additional insights into man-made barriers that lead to dullness and blight, which I think are worth noting. She focuses on single elements with low intensity land use, such as civic centers, large medical centers, large parks, and universities. She reserves special criticism for universities, which orient inwards, completely disengaged from their surroundings, producing a deadness to all that borders them. She looks at Central Park and notes that the area goes nearly unused at night; it features many attractions like carousels buried deep inside, which should be pushed to the border with the city, to allow for greater utility. The challenge is to minimize these large single-use areas, or at least pack them near multi-use, high-concentration areas that can overcome the single-use area's deadening externalities. City planning misconceptions have even taken some positive city features, like waterfronts and parks, and made them dull, by insisting on single uses that serve only small segments of the populations at specific times -- making the areas dull and even unsafe at other times.

Next to you are walking around a city, pay attention to the buildings around you and how they are used; do they serve multiple uses, populations? Do the buildings use throughout the day, or only at specific times? Are there large single-use facilities? Are the blocks small or large (I'll have to return to this later)? By what visual cues do you segment the city? Jacobs packs a lot of insight to both shape how you understand the world around you and how the city around you is shaping your perception, habits, and opportunities.

Read more!

maximize your ROI on social investment

One of the concepts I often explore is how one most positively impacts the world given their scarce amount of personal resources. If you've read any past posts, you've noted that I've downplayed domestic policies' importance, and stressed more abject suffering abroad.

The death toll in Myanmar numbers in the tens of thousands, and will likely take many more lives in the future due to famine and disease. If you have no problem supporting relatively-well off Americans, I'd ask you to consider donating to disaster relief. Outside the incredible need in the devastated area, disaster relief is also more likely to make a positive impact than money spent in social programs, because it's much easier and cheaper to solve the problem of not having a roof with short-term assistance, than it is to fix behavioral problems through long-term subsidization of sub-standard living. Assistance following a disaster should be considered preventative care, to ward off the harbingers of disease and famine that accompany such destruction. Workable land and drinkable water are worthy, doable aims.

Bottom line, your dollar goes a lot farther to people who need it a lot more. Of course, this immense amount of suffering only underscores the despicable depth to which Myanmar's military regime has sunk. Even France wants to trample on their sovereignty... but alas, we wait on the UN for the OK. I wish we could see statistics for death by red tape.

You can do a small part, by donating to the Buddhist Relief Mission, which works in the area. The question with these organizations is always whether the money is actually being directed to the intended cause. I suggest the Buddhist Relief Mission based on the recommendation of Yale economic development professor Chris Blattman.

Blattman has ties to the area, namely friends who run a community program for Burmese refugees in Thailand, and they recommend the Buddhist Relief Mission. Blattman also points to a list of international aid agencies in the NY Times, if you want to play it safe.
Read more!

the rise of the rest

Fareed Zakaria is back on Newsweek with a feature-length version of his upcoming book, "The Post-American World." Zakaria's piece is largely optimistic about the world at-large, but that doesn't mean he overlooks its problems -- he simply places these concerns in their proper context -- and advises the world's actors -- namely the US -- on how to best advance their interests.

Americans aren't quite sold on Zakaria's story of shared prosperity, as Zakaria quotes a figure of 81% of Americans believing the country is on the "wrong track." He argues that while the financial panic, war in Iraq, and terrorism are the hot topics of the day, Americans are actually disoriented by the greater changes at work -- the tallest building is in Taipei, biggest refinery is in India, largest passenger airplane is built in Europe, biggest movie industry is in Bollywood, etc.

Intellectuals wax about the 'decline' of the United States. An upcoming book asks if America is to follow the self-destructive path of the Roman Empire.

This is a sexy story, as there are certainly plenty of savory, superficial parallels between the US and fallen powers of the past.

Zakaria provides a different -- less American-centric -- narrative about the "rise of the rest," complete with insights into what the next steps are for global prosperity and American competitiveness.

Below, I will excerpt liberally from Zakaria's piece to skip to the juicy parts:

Rise of the Rest

• The US has succeeded in its great, historical mission—globalizing the world.
• The world will be enriched and ennobled as they become consumers, producers, inventors, thinkers, dreamers, and doers.
• This is all happening because of American ideas and actions. For 60 years, the United States has pushed countries to open their markets, free up their politics, and embrace trade and technology.
• Now, the underlying reality across the globe is of enormous vitality.
• Share of people living on $1 a day has plummeted from 40 percent in 1981 to 18 percent in 2004 and is estimated to drop to 12 percent by 2015.
• The global economy has more than doubled in size over the last 15 years and is now approaching $54 trillion.
• Global trade has grown by 133 percent in the same period.
• There are more power centers, with nearly all are invested in order, stability and progress.

Remaining Challenges

• There remains real poverty in the world—most worryingly in 50 basket-case countries that contain 1 billion people [ED: This is where Paul Collier comes in...]
• Global growth is also responsible for some of the biggest problems in the world right now. It has produced tons of money—what business people call liquidity—that moves around the world. The combination of low inflation and lots of cash has meant low interest rates, which in turn have made people act greedily and/or stupidly.
• Prices are rising because of growing global demand; the effect of more and more people eating, drinking, washing, driving, and consuming will have seismic effects on the global system.
• As economic fortunes rise, so inevitably does nationalism. [ED: China, India...]
• Whether the problem is a trade dispute or a human rights tragedy like Darfur or climate change, the only solutions that will work are those involving many nations. But arriving at solutions when more countries and more non-governmental players are feeling empowered will be harder than ever.
• The G8 does not include China, India or Brazil—the three fastest-growing large economies in the world—and yet claims to represent the movers and shakers of the world economy.
• If China, India, Russia, Brazil all feel that they have a stake in the existing global order, there will be less danger of war, depression, panics, and breakdowns. here will be lots of problems, crisis, and tensions, but they will occur against a backdrop of systemic stability.
  

The US still has a lot going for it...

• Currently ranked as the globe's most competitive economy by the World Economic Forum.
• Dominant in many industries of the future like nanotechnology, biotechnology, and dozens of smaller high-tech fields.
• Universities are the finest in the world, making up 8 of the top ten and 37 of the top fifty
• If you exclude the car mechanics and repairmen—who are all counted as engineers in Chinese and Indian statistics—the numbers look quite different. Per capita, it turns out, the United States trains more engineers than either of the Asian giants.

Secret to American success

• Immigrants! Most of these engineers are immigrants. Foreign students and immigrants account for almost 50 percent of all science researchers in the country. In 2006 they received 40 percent of all PhDs.
• Faced with the new technologies of foreign companies, or growing markets overseas, it adapts and adjusts. When you compare this dynamism with the closed and hierarchical nations that were once superpowers, you sense that the United States is different and may not fall into the trap of becoming rich, and fat, and lazy.
  

Challenge to the US

• American society can adapt to this new world. But can the American government?
• Yet just as they are beginning to do so, we are losing faith in such ideas. We have become suspicious of trade, openness, immigration, and investment because now it's not Americans going abroad but foreigners coming to America. Just as the world is opening up, we are closing down.
• London is now the world's leading financial center, because they have became more friendly to foreign capital and better regulation
• Or take the U.S. health care system, which has become a huge liability for American companies. U.S. carmakers now employ more people in Ontario, Canada, than Michigan because in Canada their health care costs are lower.
• Twenty years ago, the United States had the lowest corporate taxes in the world. Today they are the second-highest. It's not that ours went up. Those of others went down.

My takeaways are the importance of cutting the fat of the American economy, embracing talented, hard-working immigrants from other countries, continuing our higher-education dominance, and acknowledging the multi-polar world we have helped to create.

So far the story of the 21st century is the "rise of the rest," whether it is also the decline of the US depends on us. Read more!

the food crisis explained

The Financial Times features some of the best economists and political scientists in the world, and recently, it's been the universally-celebrated Paul Collier talking sense in their Economists' forum. One of my first posts lauded Collier's terrific analysis of global poverty and general strife in his book, The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It." (Link to Amazon).

Collier is back once again to explain the why there is a food crisis, what stands in the way of an adequate food supply, and what should be done about it. (Hat tip: Alex T at MR)


First, Collier explains the why:

"Why have food prices rocketed? Paradoxically, this squeeze on the poorest has come about as a result of the success of globalization in reducing world poverty. As China develops, helped by its massive exports to our markets, millions of Chinese households have started to eat better. Better means not just more food but more meat, the new luxury. But to produce a kilo of meat takes six kilos of grain. Livestock reared for meat to be consumed in Asia are now eating the grain that would previously have been eaten by the African poor."

Next up, a realistic solution:

"The remedy to high food prices is to increase food supply, something that is entirely feasible. The most realistic way to raise global supply is to replicate the Brazilian model of large, technologically sophisticated agro-companies supplying for the world market."

But, of course, there is a catch:

"Unfortunately, large-scale commercial agriculture is unromantic ... We laud the production style of the peasant: environmentally sustainable and human in scale."

Collier notes that we grew out of this perception of manufacturing (who dreams of owning a small manufacturing "ranch"?), and have enjoyed the manufacturing wealth since.

Yet this romanticism has taken root in agricultural development:

"In Africa, which cannot afford them, development agencies have oriented their entire efforts on agricultural development to peasant style production. As a result, Africa has less large-scale commercial agriculture than it had fifty years ago. Unfortunately, peasant farming is generally not well-suited to innovation and investment: the result has been that African agriculture has fallen further and further behind the advancing productivity frontier of the globalized commercial model."

In case you thought it couldn't get worse, Africa is the victim of more than one breed of romanticism:

"Our longstanding agricultural romanticism has been compounded by our new-found environmental romanticism. In the United States fears of climate change have been manipulated by shrewd interests to produce grotesquely inefficient subsidies for bio-fuel. Around a third of American grain production has rapidly been diverted into energy production."

Collier also reserves some blame for the European Commission, which has its own bio-fuels policy, albeit less "effective" and thereby less damaging. More damning is the EU's ban on the "production and import of genetically modified crops has obviously retarded productivity growth in European agriculture: again, the best that can be said of it is that we are rich enough to afford such folly. But Europe is a major agricultural producer, so the cumulative consequence of this reduction in the growth of productivity has most surely rebounded onto world food markets. Further, and most cruelly, as an unintended side-effect the ban has terrified African governments into themselves banning genetic modification in case by growing modified crops they would permanently be shut out of selling to European markets."

But wait, there is one more nail in the coffin for food supply. Export-restrictions in grain-exporting countries, a product of "the internal tussles between the interests of poor consumers and poor producers, the interests of consumers have prevailed. Governments in grain-exporting countries have swung prices in favour of their consumers and against their farmers by banning exports."

The effect is that grain-exporting countries have lower prices, but less grain is produced than would otherwise be produced, reducing the overall food supply, and greatly raising the prices for grain-importing countries.

What's the main takeaway?

"Unfortunately, trade in agriculture has been the main economic activity to have resisted being subject to global rules. We need stronger and fairer globalization, not less of it."

I like this piece for a few reasons -- it's comprehensive, it's straightforward -- but I especially take note of Collier's condemnation of romanticism. It's similar to what I've been trying to get at in the "moralizing" series of posts, and it demonstrates the shallowness of thinking on the left as well as the right. I'm reading Jane Jacobs' "Death and Life of Great American Cities" right now, and she strikes me a similar thinker, one who is able to see the err of well-intentioned, but entirely unintellectual pursuits. Read more!

trusting individuals to make good choices

I found an interesting observation by a conservative blog that I just stumbled upon, which reinforces my opinion that conservatives and libs are inconsistent with their policies.

"Progressives who support the right to a person making unfettered choices in sexual partners don't trust people to make their own choice on seat belt use. Progressives who support the right of fifteen year old girls to make decisions about abortion without parental notification do not trust these same girls later in life to make their own investment choices with their Social Security funds. "

Clearly, neither group can say they believe firmly in an individual's right to choose (including with reasonable qualifiers to control negative externalities).

Each group's respect for individual liberty is conditional with their approval of the individuals' possible choices. Each group embraces paternalism, and applies it based on their objection to individual choices.

An example on the macro level is the United States applauds democracy ... unless it yields an unfriendly government.

In my opinion, the challenge is to create an objective process, or framework to decide when it's proper to infringe on individual liberty -- rather than simply ad-hoc moral judgments of the ways people use that liberty.

An example of such a test is the let-individuals-do-what-they-want-unless-it-impedes-on-other's-liberty. In a simple characterization of this world, killing yourself with drugs is OK, killing someone else -- not okay. Read more!

America vs. the rest of the world

I had a pair of posts lauding Parag Khanna, so it's only proper that I introduce a terrific New Yorker article taking Khanna to task -- "After America: Is the West being overtaken by the Rest?"

Ian Buruma takes a look at new books by Robert Kagan, Fareed Zakaria, Parag Khanna, and Bill Emmott, which all deal with the idea that America is fading quietly into the night. Buruma seems to side most with Zakaria and his argument that the changing global dynamic is “not about the decline of America but rather about the rise of everyone else.” Certainly, gave me second thoughts about throwing down dollars for the Khanna book, and I'll definitely take another look at the Zakaria and Emmott books...

Who's your man out of the group? Read more!

How do you take an economy's pulse?

Gross domestic product? Gross national product? Per Capita?

Michael Clemens and Lant Pritchett have a paper that's bounced around the blogosphere entitled Income Per Natural: Measuring Development as if People Mattered More Than Places:

"It is easy to learn the average income of a resident of El Salvador or Albania. But there is no systematic source of information on the average income of a Salvadoran or Albanian. In this new working paper, research fellow Michael Clemens and non-resident fellow Lant Pritchett create a new statistic: income per natural — the mean annual income of persons born in a given country, regardless of where that person now resides."

Why should we care about Income per Natural?

The bottom line: migration is one of the most important sources of poverty reduction for a large portion of the developing world. If economic development is defined as rising human well being, then a residence-neutral measure of well-being emphasizes that crossing international borders is not an alternative to economic development, it is economic development."

One example, "26 percent of Haitian naturals who are not poor by the two-dollar-a-day standard live in the United States."

I would add that income per natural is also useful in assessing how well a country equips its citizens to prosper, either by providing economic opportunities or allowing them to leave to find them elsewhere.

Who has the highest income per natural?

As of 2000, the United States, clocking in at $34,583. Norway finished second, about $500 short. Luxembourg was the only other country to break $30,000.

According to this data, there's no better place for the *AVERAGE* person to be born than the United States. This stat avoids the pitfalls of 'per capita' measures, as those measures will punish a country for poor immigrants entering the country looking for economic opportunity (e.g., let's say there were 220 millions in the US who saw their income go up from 35-40k over a 10-year period, but in that period another 40 million people entered the country and had an average income of 20k; average income in that period would appear to only go up under $1,900.)

The fact that the economy is supporting the additional foreign workers means it is MORE robust, not less so. Income per natural doesn't penalize countries for foreign workers.

Still, it is only one tool. The concept could be very useful, however, if broken down by economic class. Would help us assess which Americans exactly are being left behind, if any.

Anyone else have any favorite economic tools? Read more!

Book to Own: Who's Your City?

A few weeks back, I posted a note on Richard Florida's new book, Who's Your City?, on how the creative economy is making where to live the most important decision of your life. Well, thanks to a Ms. B, I got a hold of a copy. Here are some brief comments from the Amazon reviews before getting to the ideas I found interesting.

The Good and the Bad:

• The spirit of Jane Jacobs lives on.
• The book's tone wanders from broad, Friedmanesque discussion of the world economy to home-buying advice as well as statistic-and-theory-heavy text as though unsure of its intended audience. Yet the author opens up a complex, underexamined subject along the way.

Florida wants to help. He wants to explain America's economic divide abd the composition of cities, while also helping you pick out the perfect location for you at each life stage. The book could have used better editing/organization, and lacked a strong concluding chapter to bring it all together, but still packed a great deal of insight in a very readable text.


Florida breaks his ideas down into four parts: why place matters, the wealth of place, the geography of happiness, and where we live now. The first two, which comprise 127 pages, contain the meat of Florida's analysis.

Spatial Sorting and its Consequences

Florida begins by deftly dismissing Thomas Friedman's claim that The World is Flat. as he argues for a "spiky world." An important nuisance is that while place matters, it is possible for port cities like NYC and London to integrate considerably; in fact, Florida refers to the pair as NyLon.

He proceeds to explore theories of economic growth before concluding that mega-regions (The Rise of the Mega-Region PDF) are the true economic unit and that they will only continue to grow as creative people and their firms continue to cluster together.

This clustering powers economic growth, but it also has potentially negative byproducts. Florida raises this issue in his discussion of how peoples of greater income and/or ability are more mobile, while those of lesser income and/or ability are more rooted. This phenomena, coupled with gentrification, is leading to a "means migration ... dividing the world into two kinds of regions with very different economic prospects (p. 99)."

He quotes Wharton economist Joseph Gyourko, "This spatial sorting will affect the nature of America as much as the rural-urban migration of the late nineteenth century did," before asking what will happen to American society when city-regions become entirely gentrified, and the poor are relegated to the fringe and beyond.

Finding the right shiny, happy place

The final two parts of the book (170 pages) look at what people look for in a city, where they find it, where specific industries concentrate, and what this means for you in choosing where to live in each of your life stages.

This section of the book is pleasant, but not incredibly thought-provoking, especially as Florida moves away from the city data and toward "make a list of what's important to you!"

Still, I enjoyed finding out about American cities that were getting it right (Fayetteville, Arkansas, really???), and every once in a while Florida would sneak in some insightful commentary that made me glad I didn't skip any chapters.

How Education leads to Sorting...

On p. 247, Florida returns to the idea of spatial sorting. The rich and the creative are clustering in certain mega-regions, and they are also being sorted into mega-regions that specialize in certain industries (finance in NY, music in Nashville, entertainment in LA, biotech in Boston, etc.) The creative power in each of these regions is being amplified by the concentration of talent, but at the expense of diversity (not just racial, but economic, industry, intellectual, etc.)

On the next page, Florida turns to Publius favorite Tyler Cowen to explain society's growing economic divide. The culprit isn't "outsourcing, immigration, or even wage gaps ... the real culprit is the divide in human capital and education."

Cowen: "The return for a college education, in percentage terms, is now about what it was in America's Gilded Age in the late nineteenth century. This drives the current scramble to get into top colleges and universities. In contrast, from 1914 to 1950, the relative return for education fell, mostly because more new college graduates competed for a relatively few top jobs, and that kept top wages from rising too high."

The return on education has "skyrocketed" since 1980, and part of that return is the mobility low-income individuals (like Florida himself) needed to engage the economic opportunities that are not in one's backyard.

Florida jumps back to the subject of education a bit later, as he argues that current schooling was designed for the "old mass-production economy, which no longer reflects the realities of our creative age." Schooling is designed to transmit discipline, not knowledge, and while Florida is careful not to blame the teachers, he argues that schools are squeezing the creativity out of kids.

How Mating leads to Sorting...

People usually marry someone like them in economic/social class. This isn't new, but what is new is the earning power of the women in these relations. As you may have noticed, women are thriving in the workplace like never before.

So, not only is the return on education greatly increased, but now college-educated households are enjoying two times the economic benefits.

All this spells even greater economic inequality. Click here for a wiki chart showing how different percentiles have seen their income rise since 1967. Before I wrap up this beast of a post, I'll add a disclaimer that while Florida has some great insights on economic inequality, it's an incomplete analysis of the American economy and I don't think policy decisions should be based on penalizing top earners for experiencing more income growth than lower percentiles.

A clear lesson from Florida's book, however, is the role of education and its significance in empowering individuals to succeed.

Read more!