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2014 April 16 Wednesday
On Mexico's Poor Economic Growth

Dani Rodrik says in Mexico rising productivity is not broad-based and substantial parts of the economy are becoming less productive.

PRINCETON – When researchers at the McKinsey Global Institute (MGI) recently dug into the details of Mexico’s lagging economic performance, they made a remarkable discovery: an unexpectedly large gap in productivity growth between large and small firms. From 1999 to 2009, labor productivity had risen by a respectable 5.8% per year in large firms with 500 or more employees. In small firms with ten or fewer employees, by contrast, labor productivity growth had declined at an annual rate of 6.5%.

My guess is that the brighter people are concentrating in the larger firms. Economists should focus more the most capable workers when they try to figure out what is going on in less developed countries.

What would be very interesting to know: what do bright people do for a living in each country in the world? Are they concentrating together in the faster growing sectors? The computing and communications revolution enables bright folks to collaborate more easily. Are they using communications tech to deal more directly with each other?

Rodrik says the less productive sectors of developing country economies are expanding

What is new – and distressing – is that developing economies’ low-productivity segments are not shrinking; on the contrary, in many cases, they are expanding.

But what are "developing countries"? I suspect many are just less developed countries that continue to lag developed countries by historical margins. What needs to be separated out: countries that are narrowing the per capita GDP gap with the developed countries versus the countries that are doing no such thing.

How about we take Mexico for example? A bit of web searching turned up the relevant info: Mexico's gap with the United States is not closing at all. Mexico's per capita GDP as a ratio to USA was higher in 1980. Note the graph on that page which shows So much for the wonders of NAFTA. Chile is doing better at over 25% of US per capita GDP and still rising.

On the sour side, notwithstanding the phenomenal dynamism of exports, the Mexican economy’s strategy these last decades has simply failed in its quest to achieve high and sustained growth. Indeed, while its contribution to world output was 2.68% in 1990 and 2.44% in 1996, it fell steadily since then to reach 2.23% in 2008 and 2.12 in 2013. The growth performance in per capita terms is even more disappointing. Indeed, from 1994 to 2012, Mexico’s GDP per capita, in constant US dollars expanded at a meager annual average rate of 1.1%, a very lackluster result even by Latin American standards, not to mention in comparison with the Mexican economy’s own growth experience in 1950-81. As Figure 1 shows, with such slow growth, Mexico’s gap with the US economy has kept widening since 1982, and the launch of NAFTA did not reverse this adverse trend. Indeed, in 1980 Mexico’s GDP per capita was 23% of the US level, by 1994 the percentage was smaller 17.7%, and 16.9% in 2012. Thus, although since NAFTA the trade position with the US has shifted from massive deficit to a significant surplus, the Mexican economy is lagging behind the US.

Not much changes.

Chile has slightly bypassed Argentina in per capita GDP. My guess is that Chile will continue to gain ground on Argentina. But it is surprising how highly Argentina continues to rank in South America given how badly its government mismanages and damages its economy.

What I would like to know: Why does Uruguay have over double the per capita GDP of Paraguay?

By Randall Parker 2014 April 16 08:42 PM 
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2014 April 14 Monday
Will Half Of Colleges In USA Close?

Technological disruption and increasing doubt in the value of a college degree are taking their toll.

Harvard Business School professor Clayton Christensen has predicted that as many as half of the more than 4,000 universities and colleges in the U.S. may fail in the next 15 years. The growing acceptance of online learning means higher education is ripe for technological upheaval, he has said.

Mergers, acquistions, and closings are all up. Moody's is downgrading debt of more schools.

Check out the table here of ROI for degrees from different universities.

All these caveats are true. But overall, the PayScale study surely overstates the financial value of a college education. It does not compare graduates’ earnings to what they would have earned, had they skipped college. (That number is unknowable.) It compares their earnings to those of people who did not go to college—many of whom did not go because they were not clever enough to get in. Thus, some of the premium that graduates earn simply reflects the fact that they are, on average, more intelligent than non-graduates.

Smart and motivated are more likely to go to college in the first place. Which college degrees really offer a positive ROI due to skills learned? How much of the ROI comes from companies that will hire you because you have a bachelors degree? BA as IQ proxy. BA from highly prestigious school as even better IQ proxy.

By Randall Parker 2014 April 14 09:34 PM 
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2014 April 13 Sunday
Ukrainian Security Service Trying To Take Back A Police Station

Vladimir Putin must be pleased. What's your bet: Will Vlad try to take eastern Ukraine?

He said crack units from Ukraine's SBU security service moved first into the city of Slavyansk to regain control of a police station that had been seized by about 20 militants on Saturday.

But Avakov admitted that his troops had to "regroup" after meeting stiff resistance and suffering casualties.

Doesn't Ukraine have some good special forces that could do the job? Or are they deployed elsewhere trying to drive Russian special forces out of eastern Ukraine?

This all brings to mind some books. I just finished reading The Duel: The Eighty-Day Struggle Between Churchill and Hitler by John Lukacs. The section about British War Cabinet debates on May 26-28 1940 was by itself sufficient reason to read the book. Lord Halifax had such incredibly bad judgment. I am part way in to Troublesome Young Men: The Rebels Who Brought Churchill to Power and Helped Save England by Lynne Olson.

What strikes me while reading about Western fools in the 1930s and also some sharp guys like Churchill: The Ukrainian government needs an exceptionally competent leader, highly trained special forces, really good security forces for investigations, and equipment to run operations in their western territories.

Germany is probably going to be willing to throw Ukraine under the bus for sake of good relations with Russia. I think Putin has an advantage that the Europeans are so fragmented. Meanwhile, Obama is no Dick Nixon when it comes to international chess and John Kerry is way below Henry Kissinger in learning and guile.

Luckily for us the stakes in Ukraine for the United States are pretty low. But the episode is a reminder that the "end of history" hasn't happened yet.

By Randall Parker 2014 April 13 06:54 PM 
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2014 April 09 Wednesday
Vladimir Putin Revitalizes NATO

I think Vlad overplayed his hand.

Prior to the Ukraine crisis, there were many asking what purpose NATO would serve once the alliance's troops had withdrawn from Afghanistan. But now that Putin has taken over the Crimea -- leading countries on the alliance's eastern edge to feel threatened -- the mood in NATO's Brussels headquarters has changed dramatically. General Secretary Rasmussen, one NATO source said, has "positively blossomed." And the US, Britain and most Eastern European member states support him.

Der Spiegel Germany portrays Germany as very unkeen to stand up against Russia over the Crimea and western Ukraine (which it sure looks like Vlad is going to grab too).

So Vlad is good for defense spending. The Poles and Baltic nations aren't going to cut their defense budgets when they are afraid of the Russian bear. I think the Eastern Europeans will place good relations with Washington DC ahead of good relations with Berlin or Moscow.

By Randall Parker 2014 April 09 09:20 PM 
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Germany To Embrace Counterspying Against United States

A spying arms race anyone?

While the minister's words may have sounded innocuous, they marked nothing less than the start of a political about-face. Away from the public eye, the German government is moving toward implementing plans to turn its own spies against partner countries like the United States, putting allies on the same level as the Chinese, Russians and North Koreans.

If I was in charge of the German government I'd respond to NSA spyingi by heavily hardening my communications and computer networks. This is a far more productive response than trying to get the NSA to back off since a vulnerable computer network is also an invitation to many other national governments and organized crime as well.

By Randall Parker 2014 April 09 07:56 PM 
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2014 April 06 Sunday
Tyler Cowen On Young Men With Restless Temperaments

Tyler injects a bit of reality into the discussion on declining male labor market participation.

There is also a special problem for some young men, namely those with especially restless temperaments. They aren’t always well-suited to the new class of service jobs, like greeting customers or taking care of the aged, which require much discipline or sometimes even a subordination of will.

The labor market is shifting against males with any of these attributes:

  • Short attention span.
  • Love of outdoors work.
  • Doesn't want to take orders.
  • Low IQ.
  • Impulsive

Tyler says that automation alone isn't causing the decline in male labor market participation. Okay, if automation preferentially eliminates male jobs and the people use the money saved to buy more services (e.g. more hotel stays and so more jobs for those greeting customers warmly at a hotel desk) that does work against men. There are fewer jobs involving men against the elements operating equipment.

What can be done about it? In 10 or 20 years time: offspring genetic engineering. The upper classes will make sure they do not give birth to boys without the qualities needed for labor market success. Genetic attributes associated with labor market success will be tested for in multiple embryos and the best ones chosen for implantation. How many in the lower classes will opt for embryo selection? At least in the United States I foresee big political resistance for government funding to make this affordable for the poor.

By Randall Parker 2014 April 06 10:24 AM 
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2014 April 05 Saturday
Having Faith In Democracy Is Like Having Faith In Humanity

I have no faith at all, let alone in humanity.

Why do I bring this up? A guy named Damon Linker has written a piece about evil Republicans with the following title and subtitle: The GOP's case for scrapping democracy: In the past week alone, the Republican Party has shown its true colors. He does not address the failings of democracy. He doesn't want to acknowledge that right wingers who are losing their enthusiasm for democracy have got concrete reasons to feel that loss of enthusiasm.

Democracy is not the Holy Grail. Dictatorship is occasionally benevolent and wise. But usually not. Sometimes (not always) democracy is a better alternative. It depends on the voters. In some countries (e.g. Arab ones with a Sunni Muslim majority) the minorities are pretty much shafted in a democracy. A Coptic Christian in Egypt would have to be self-hating to want democracy in Egypt. Ditto an Alawite, a Christian, or a Shiite in Syria (or a Christian or Kurd or Yezidi in Iraq). In some countries (e.g. Ukraine) democratically elected governments are corrupt and a burden on the population. In some countries (e.g. Argentina) governments are corrupt and repeatedly prone to economic policies that are insanely destructive.

So the point is that electorates sometimes extremely fail in their responsibilities to choose wise (or at least not incredibly bad) leaders and in some countries they do this for decades with no sign of improvement. Venezuela, Argentina, Ukraine. These are not poster children for democracy.

Democracy is failing in the United States too. Take, for example, US taxes and US entitlements. Our voters have decided they want politicians who will give them high entitlements and low taxes. Our voters made this choice and have persisted in it for decades.

Now we come to my post title: Having faith in democracy is like having faith in humanity. It does not make sense to have faith in humanity. It makes for really good political rhetoric to laud fellow citizens and the human race as a whole. But the vat majority of people accomplish little that benefits the rest of us. Some are innately psychopaths, innately criminal, innately narcissists, innately dumb, innately incurious, innately impulsive and/or use a high discount rate (giving little weight to medium and long term consequences to actions) when making decisions. Most can't be troubled to understand the consequences of their supporting whoever they vote for.

A woman from an undemocratic but rapidly industrializing country (you can guess) asked me in all sincerity how voters in a democracy can be prevented from robbing other people and robbing the future by supporting politicians who will give them what they want at the expense of the most productive. I told her I did not know.

In the above linked article the writer links to venture capitalist Tom Perkins who argues that only people who pay taxes should get to vote and those who pay more should get more votes. That would probably improve the quality of government.

By Randall Parker 2014 April 05 08:35 PM 
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2014 April 03 Thursday
Cato Resented Caesar For Writing A Great Law

Along with many other books about the Roman Republic and Roman Empire I am reading Philip Freeman's Julius Caesar. Among the reasons Caesar was great: he made excellent changes to law and policy in Rome that the corrupt and wealthy Senate opposed because the changes threatened their ability to fleece others. Rome captured many lands, turned them into provinces, and then let provincial governors (usually members of the Senate) mismanaged and basically pillage them with draining taxes that went into the pockets of administrators and their allies in Rome. The Senate would not fix the problem. The younger Cato got nowhere with fixing the problem even while looking down at Caesar as a threat to freedom and good government. Caesar addressed the problem and Cato hated that it was Caesar that did it:

The administration of Roman provinces had reached a low point by the time of Caesar's consulship through criminal mismanagement, exploitation, and crushing taxation. As many far-thinking Romans had realized since the time of Hannibal, no empire spanning thousands of miles and containing millions of people could be safe and prosperous if it were run for the exclusive benefit of a few wealthy citizens. Caesar determined to change this once and for all - not just because of any altruistic love for the oppressive natives, but because Rome would fail miserably to live up to its tremendous potential as a world power unless it revolutionized how it controlled the lands beyond Italy. Caesar's monumental lex Julia de repetundis - the Julian law of extortion - contained over one hundred chapters of incredibly detailed rules for administering provinces, prosecuting crooked governors, preventing bribes, and generally keeping the senatorial class in line when they were abroad running the empire. The full text of the legislation is lost. But Cicero called it justissima atque optima ("most just and best") and even Cato could find nothing to complain about. This infuriated Cato so much that he could never bring himself to attach Caesar's name to it.

Cato was a fool.

We need a better way to choose leaders. The best are so much better than the rest.

By Randall Parker 2014 April 03 08:07 PM 
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Collapsing Chicago Middle Class

See this series of maps on the shrinking of middle income areas in Chicago combines with growth in high income areas and really large growth in very low income areas.

As the lower classes become much larger portions of the Chicago voters can the upper classes maintain the quality of services and police protection in their zones? First, the lower classes are more criminal and therefore more dangerous. Second, will they vote for incompetent populists who mess up the government and suck money out of basic fire, police, courts, jails, and infrastructure maintenance in order to expand the welfare state?

I think the upper class liberals aren't thinking enough chess moves down the board in their liberal cities. I think they are going to lose control of some of the cities they'd prefer to be able to use for their careers and lifestyles. The welfare state and immigration are both threats to their rising preferences for urban living.

By Randall Parker 2014 April 03 07:46 PM 
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Coalition For Cheap Skilled And Unskilled Labor Splitting Up?

Big business, especially in Silicon Valley, wants a big expansion of the H1-B program in order to lower the costs of hiring engineers. So they've entered into an alliance with the Democrats who want a far larger increase in unskilled workers who vote overwhelmingly for Democrats. Big money is trying to get the skilled labor immigration expansion passed by itself in the House of Representatives.

On the bright side, if they succeed most of the internet billionaires won't stick around to lobby for a huge expansion of unskilled labor. They do not use it much. But this is not likely to pass because Democrats in the Senate want that huge surge in the size of the lower class that will guarantee a turn of America into a one party state which they think they will run. So I do not think big money is going to be allowed to leave their coalition with the supporters of mass unskilled labor immigration.

But the Gang of Eight bill stipulates selective increases in minimum wages for agricultural workers. Doesn't this defeat the purpose of immigration amnesty for the wealthy large produce farmers?

The nervous tech types aren't the only weak links in the comprehensive immigration reform chain. For example, the Gang of Eight bill contains long passages of excruciatingly detailed text laying out pay rates — to the penny — negotiated by union and agricultural interests. It stipulates, for example, that produce graders and sorters will be paid $9.84 an hour in 2016, equipment operators $11.58 in 2015, and nursery and greenhouse workers $9.64 in 2016. And much more.

Why not just raise farm labor rates to $15 per hour and suddenly millions more people will want to do the work.

The US Senate reminds me of the Roman Senate. Though the Roman Senators got even cheaper labor, slave labor, and they didn't let the slaves vote.

I do not view the American Republic as fixable.

By Randall Parker 2014 April 03 07:31 PM 
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2014 April 02 Wednesday
Syrian Moderate Rebels In Short Supply

Barack Obama is in a bind. Any anti-aircraft missile sent to Syria to overthrow Assad could end up in the hands of Jihadis who want to take out Western passenger jets.

Putin has gained the upper hand in Syria because Obama is reluctant to supply the opposition with advanced weaponry such as guided anti-tank and anti-aircraft missiles out of fear they may fall into the hands of radical Islamic groups linked to al-Qaeda, said Igor Korotchenko, a member of the Defense Ministry’s advisory council and the head of the Center for Analysis of World Arms Trade in Moscow.

The article is about Russia's successful support for Assad's government against the rebels in Syria. Since the rebels are dominated by Jihadists I say hurray for Russia and Tsar Vlad.

Meanwhile the US and Saudi Arabia are in a serious pickle over how to handle Syria. Even as Saudi recently introduced serious criminal penalties for Saudi citizens who fight in Syria the Saudi government continues to support overthrow of Assad even though Saudis who fight in Syria become transformed into threats to the Saudi monarchy. That shows you implacably opposed the Saudis are to any ally of the non-Arab and non-Sunni Persians. and of course Obama has recently assured King Abdullah during a recent trip Riyadh that the US government maintains its commitment to try to find and fund a moderate opposition to Assad's government. If you have any good ideas for how to find moderates in Syria who want to fight against the Jihadists and against Assad I am sure the CIA would like to hear from you.

Okay, this is more kinds of funny. The Saudis want to support civil war against supposedly evil neighbors. But at the same time the Saudis are afraid the sorts of people who fight against these evil (meaning non-Sunni) governments might come back and want to overthrow the Saudi monarchy. Whatever makes these neighboring leaders so evil? A lack of commitment to freedom and democracy! Nah, just kidding.

Then there is the US. Why ever is the US opposed to the government of Syrian president Bashar al-Assad? Its lack of democracy? Hey, Saudi Arabia does not have a democracy. Its oppression of minority groups? The current government protects minority groups against oppression by the Sunni (not very tolerant) majority.

I think Tsar Vladimir is showing great wisdom on Syria in marked contrast to elected leader of progressives in America.

By Randall Parker 2014 April 02 08:51 PM 
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2014 March 30 Sunday
My Questions On Russia And Ukraine

Ukraine has a lot of corruption and low living standards. Therefore we interrupt regularly scheduled pablum news with important questions:

  • Does corruption do more harm to the Russian or Ukrainian economy?
  • Does an underdeveloped legal system for contracts and property do more harm to the Russian or Ukrainian economy?
  • Is Russian corruption stable, growing, or shrinking?
  • Will the suppression of free press outlets in Russia accelerate the growth of corruption?
  • Does wealth from fossil fuels extraction allow the elites in Russia to be more corrupt?
  • Will Russian seizure of Crimea make Crimea more or less corrupt?
  • Will the new government in Ukraine be more or less corrupt than the overthrown one?
  • If Russia seizes eastern Ukraine will that enable western Ukraine to develop a healthier 2 party system that will in time reduce corruption?

My point about a 2 party system: If the two parties are pro-Russia and pro-West (as exists now with a large Russian population in Ukraine) then there won't be much electoral competition over corruption. But if the Russians split off then it seems to me there is a greater hope for competition between the two parties over the issue of corruption.

I also wonder whether the GOP's decline in California due to immigration will cause a shift in political competition to the primaries over corruption or if California will just become more corrupt in its poorer and less skilled districts.

Update: Ukraine is poor with a per capita GDP of only $3,867. Compare that to its neighbors: Belarus at $6,685, Romania at $9,036, Hungary at $12,531, Poland at $12,708, Russia at $14,037, and Slovak Republic at $16,847. Ukraine has only one neighbor which is poorer: Moldova at $2,038. What causes this?

By Randall Parker 2014 March 30 09:06 PM 
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Former Adviser Says Putin Wants Finland

But Finland isn't at the top of his list.

Say he grabs eastern Ukraine. What next? Belasus? Would he actually make a play for Lithuania, Latvia, and Estonia? They are members of NATO. So is Poland. Finland, Sweden, and Ukraine are not members of NATO.

Any country near Russia with a sizable Russian minority ought to offer them relocation payments to leave. Though in the more prosperous states a Russian would be taking a step down in standard of living by going back to Russia. Their kids would be better of learning English and moving deeper in to the EU.

Putin is starting a new Great Game.

By Randall Parker 2014 March 30 08:18 PM 
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2014 March 25 Tuesday
6 Things Vladimir Putin Has Going For Him

Theodore Dalrymple says Putin has nothing to worry about from Europe for 4 reasons:

Putin has four things on his side, at least in the short-term. The first, of course, is military power. The second is his increasing control of the media and over public opinion in Russia. The third is that his policy appeals to nationalist passion which, apart from ethnic hatred, is probably the strongest political passion of all. The fourth is the weakness of his European opponents.

He left out a fifth Putin advantage: The Europeans want the oil and natural gas that Russia is selling.

But wait, there's more: Dalrymple tries to evoke fear of 1938 with democracy complacent. But complacent democracy in 2014 makes sense. Vlad isn't going to send tank armies into Europe. He can't. The only thing he'd accomplish by trying to do so is give the US Air Force pilots opportunity for lots of realistic target practice. Oh, and the US DOD a much bigger budget. Plus, a really big revitalization of the Atlantic Alliance. He might even pull Europe out of its economic depression. For Russian? Not so much.

So what does Vlad have going against him? Internal stuff: Putin's problems include poor economic growth caused by his own corrupt government, a coming peak in Russian oil production, a shrinking population, and a hostile growing Muslim minority. He doesn't the skills or inclination to turn his nation around.

Anyone want to make a compelling case for why fate of the West rests on the fate of Ukraine?

By Randall Parker 2014 March 25 08:55 PM 
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2014 March 22 Saturday
Venezuela's Breakaway City Of San Cristobal

700,000 have effectively seceded from the corrupt, socialistic, and repressive government of Venezuelan President Nicolas Maduro.

The rebels are working on defensive perimeters to keep out the National Guard. Meanwhile, back in Caracas Maduro is getting an upper hand on the opposition.

Maduro is trying to pacify San Cristobal by sending goods to its supermarkets that were rarely there before the rebellion.

Students want their deaths at the hands of thugs to have meaning for a big cause:

“We prefer to die in an army attack than for an iPhone in an armed robbery outside our homes.”

Hey Mexican readers, you know who you are. Still want to defend Maduro's government? Venezuela's economy has become severely messed up by its government.

By Randall Parker 2014 March 22 12:48 PM 
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2014 March 20 Thursday
Putin Effectively Tells West To Go For Energy Independence?

A German news site asks:

Why would a country which gets half of its revenue from the export of energy make an aggressive power play that tells every last one if its customers that it can't be trusted and that they had better wean themselves off Russian oil and gas sooner rather than later?

Imagine the EU reacted to Russia's seizure of Ukraine by getting really serious about reducing its dependence in Russian natural gas and oil. France could do its part to wean Europe off of Russian natural gas by tripling its fleet of nuclear reactors in order to supply its neighbors with enough energy to replace Russian energy. Germany could do its part by resuming spending too much on solar power far from the equator. Perhaps Scandinavian countries build wind towers in their sparsely populated northern zones. Imagine.

But meanwhile back in reality: Aging and economically cratering Europe is focused in upon itself, absorbed in the financial problems of stagnating economies and looming sovereign debt defaults and bank defaults. The EU is not a national government of a bunch of peoples, cultures, and languages with quite different outlooks and motivations. So I think Vladimir Putin shouldn't worry about that.

Russia's problem is that once its fossil fuels production peaks it does not have enough of a real economy to replace it. The Russian government needs to make a real legal system where businesses are not vulnerable to arbitrary law enforcement and where they can invest safely build up lots of capital. That would make Russian less vulnerable to China or economic pressure from the Western countries. But it seems as unlikely that Russia will stop acting like Russia as it is that the EU member states will stop being their natural selves.

Does anyone think that the Russian seizure of Crimea is an important turning point? If so, for what?

By Randall Parker 2014 March 20 08:55 PM 
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