Saturday, October 29, 2011

How the Death Tax Hurts the Poor

by Steven E. Landsburg

Wall Street Journal

October 29, 2011

I'm sure there's a lot to be said for rich people, but they sure do consume a lot of resources. I wish they'd leave more for the rest of us. That's why I oppose the death tax.

The death tax sends a powerful message to rich people: "You can't leave everything to your heirs, so spend now, before it's too late. Burn more fuel. Demand more timber for your mansions, more steel for your private planes, and more fiberglass for your yachts.''

Then all those resources—the fuel and timber, the steel and fiberglass—become unavailable to build factories, so the rest of us get worse jobs at lower wages. Those resources are unavailable to build farm equipment, so we all pay higher food prices. They're unavailable to build roads and schools and hospitals.

I don't begrudge anyone the fruits of his labor. But the death tax encourages people to pick extra fruit, leaving the trees a little barer for the rest of us.

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Friday, October 28, 2011

Fighting violent gang crime with math

by Stuart Wolpert

UCLA Newsroom

October 28, 2011

UCLA mathematicians working with the Los Angeles Police Department to analyze crime patterns have designed a mathematical algorithm to identify street gangs involved in unsolved violent crimes. Their research is based on patterns of known criminal activity between gangs, and represents the first scholarly study of gang violence of its kind.

The research appears today on the website of the peer-reviewed mathematical journal Inverse Problems and will be published in a future print edition.

In developing their algorithm, the mathematicians analyzed more than 1,000 gang crimes and suspected gang crimes, about half of them unsolved, that occurred over a 10-year period in an East Los Angeles police district known as Hollenbeck, a small area in which there are some 30 gangs and nearly 70 gang rivalries.

To test the algorithm, the researchers created a set of simulated data that closely mimicked the crime patterns of the Hollenbeck gang network. They then dropped some of the key information out — at times the victim, the perpetrator or both — and tested how well the algorithm could calculate the missing information.

"If police believe a crime might have been committed by one of seven or eight rival gangs, our method would look at recent historical events in the area and compute probabilities as to which of these gangs are most likely to have committed crime," said the study's senior author, Andrea Bertozzi, a professor of mathematics and director of applied mathematics at UCLA.

About 80 percent of the time, the mathematicians could narrow it down to three gang rivalries that were most likely involved in a crime.

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Read the Paper

Thursday, October 27, 2011

Greece Default Swaps Failure to Trigger Casts Doubt on Contracts as Hedge

Bloomberg
October 27, 2011

The European Union’s ability to write down 50 percent of banks’ Greek bond holdings without triggering $3.7 billion in debt insurance contracts threatens to undermine confidence in credit-default swaps as a hedge and force up borrowing costs.

As part of today’s accord aimed at resolving the euro region’s sovereign debt crisis, politicians and central bankers said they “invite Greece, private investors and all parties concerned to develop a voluntary bond exchange” into new securities. If the International Swaps & Derivatives Association agrees the exchange isn’t compulsory, credit-default swaps tied to the nation’s debt shouldn’t pay out.

“It will raise some very serious question marks over the value of CDS contracts,” said Harpreet Parhar, a strategist at Credit Agricole SA in London. “For euro sovereigns in particular, the CDS market is likely to remain wary.”

Politicians and central bankers came to a last-minute agreement after banks, the biggest private holders of Greece’s government bonds, were threatened with a full default on their debt, according to Luxembourg Prime Minister Jean-Claude Juncker. ISDA General Counsel David Geen said his organization considered the agreement to be voluntary, even if there may have been “a lot of arm twisting.”

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Saturday, October 22, 2011

The Wild Ride of the 1%

by Robert Frank

Wall Street Journal

October 22, 2011

Jacqueline Siegel paces the floor of her unfinished 7,200-square-foot ballroom. The former beauty queen, with platinum-blond hair, blue eye shadow and a white minidress, clacks along the plywood construction boards in her high heels trailed by a small entourage of helpers and staff.

"This is the grand hall," she says, opening her arms to a space the size of a concert hall and surrounded by balconies. "It will fit 500 people comfortably, probably more. The problem with our place now is that when we have parties with, like, 400 people, it gets too crowded."

The Siegels' dream home, called "Versailles," after its French inspiration, is still a work in progress. Its steel-and-wood frame rises from the tropical suburbs of Orlando, Fla., like a skeleton from the Jurassic age of real estate. Ms. Siegel shows off the future bowling alley, indoor relaxing pools, five kitchens, 23 bathrooms, 13 bedrooms, two elevators, two movie theaters (one for kids and one for adults, each modeled after a French opera theater), 20-car garage and wine cellar built for 20,000 bottles.

At 90,000 square feet, the Siegels' Versailles is believed to be the largest private home in America. (The Vanderbilt family's Biltmore house in North Carolina is bigger at 135,000 square feet, but it's now a hotel and tourist attraction). The Siegels' home is so big that they bought 10 Segways to get around—one for each of their eight children.

After touring the house, Ms. Siegel walks out to the deck, with its Olympic-size pool, future rock grotto, three hot tubs and 80-foot waterfall overlooking Lake Butler. Her eyes well up with tears.

Versailles was supposed to be done by now. The Siegels were supposed to be living their dream life—throwing charity balls and getting spa treatments downstairs after a long flight on their Gulfstream. The home was the culmination of David Siegel's Horatio Alger story, from TV repairman to chief executive and owner of America's largest time-share company, Westgate Resorts, with more than $1 billion in annual revenue and $200 million in profits.

Yet today, Versailles sits half-finished and up for sale. The privately owned Westgate Resorts was battered by the 2008 credit crunch and real-estate crash. It had about $1 billion in debt—much of it co-signed by the Siegels.

The banks that had loans on Versailles gave the Siegels an ultimatum: Either pay off the loans or sell the house. So it's now on the market for $75 million, or $100 million if the buyer wants it finished.

As she stands on her deck in the Florida sun, Ms. Siegel wipes away her tears. "Maybe it will still work out," she says. "It always does, right?"

The Siegels' Versailles may be the nation's most extravagant monument to the debt-fueled, status-crazed real-estate binge of the past decade. Like many Americans, the Siegels borrowed too much, spent too much and bet that values could only go higher. Even in the age of excess, Versailles was excessive.

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Friday, October 21, 2011

Who You Are

by David Brooks

New York Times

October 20, 2011

Daniel Kahneman spent part of his childhood in Nazi-occupied Paris. Like the other Jews, he had to wear a Star of David on the outside of his clothing. One evening, when he was about 7 years old, he stayed late at a friend’s house, past the 6 p.m. curfew.

He turned his sweater inside out to hide the star and tried to sneak home. A German SS trooper approached him on the street, picked him up and gave him a long, emotional hug. The soldier displayed a photo of his own son, spoke passionately about how much he missed him and gave Kahneman some money as a sentimental present. The whole time Kahneman was terrified that the SS trooper might notice the yellow star peeking out from inside his sweater.

Kahneman finally made it home, convinced that people are complicated and bizarre. He went on to become one of the world’s most influential psychologists and to win the Nobel in economic science.

Kahneman doesn’t actually tell that childhood story in his forthcoming book. Thinking, Fast and Slow is an intellectual memoir, not a personal one. The book is, nonetheless, sure to be a major intellectual event (look for an excerpt in The Times Magazine this Sunday) because it superbly encapsulates Kahneman’s research, and the vast tide of work that has been sparked by it.

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Wednesday, October 19, 2011

David Bernstein on Rehabilitating Lochner and the Freedom to Contract

Hosted by Nick Gillespie

Reason TV

October 18, 2011

“Either the Commerce Clause gives Congress a plenary power to regulate anything it pleases or it doesn’t; and let’s have that argument,” says George Mason University law professor David Bernstein.

Bernstein goes after progressive attempts to limit economic freedom and liberty of contract in his new book Rehabilitating Lochner: Defending Individual Rights against Progressive Reform, a history of the 1905 case Lochner v. New York. The decision nullified a state law regulating work hours for bakers and became the impetus for a 40-year period where American courts protected economic liberty.

A Lochner rehabilitation has not been easy, Bernstein admits. Many legal experts see Lochner as on par with the infamous Dred Scott decision. The government's encroaching power under the Commerce Clause has also held the case for economic liberty back. But Bernstein remains hopeful and believes both liberals and conservatives have something to gain in reexamining Lochner's implications, which range from protecting the right to an abortion to striking down the health care act’s individual mandate.


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Sunday, October 16, 2011

Tuesday, October 11, 2011

Are Children Selfish?

Wall Street Journal
October 11, 2011

To determine the altruistic tendencies of 3-year-olds, scientists gave each of 150 of them six packets of stickers and said they could give some of their stickers to a kid in a room next door. Kevin Helliker has details on Lunch Break.


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'It's Mine!' The Selfish Gene

Wall Street Journal
October 11, 2011

A 3-year-old is handed six sets of colorful stickers.

"You can keep all of them," he is told. "Or you can give some to a child you don't know. He doesn't have any stickers. Do you want to keep all of your stickers? Or do you want to give some to a child you don't know?"

That was the basic script for a study that took place recently in an Israeli playroom which doubled as a social-science laboratory. A child-care-professional-turned-researcher asked 136 children, aged 3 and 4 years old, to step one at a time into the playroom to shed light unwittingly on a hot topic in behavioral science: Are children altruistic?

It seems they are, and part of the explanation may be genetic, according to the study, published last month in the online scientific journal PLoS One. About two-thirds of the children chose to give one or more sets of stickers to an unknown recipient, described to them only as a child who had no stickers. There were no significant differences in generosity between boys and girls.

Among those who declined to share, many had something in common: a variation in a gene, known as AVPR1A, that regulates a hormone in the brain associated with social behaviors. Researchers found that this genetic variant was associated with a significant decrease in willingness to share.

Until recently, only limited research existed on altruism in children, and what it showed was younger children acting less generously. "Younger children appear to weigh costs to the self more than do older children when deciding whether to assist others and are less attuned to the benefits," says a professional guide called the Handbook of Child Psychology.

But young children all along have displayed greater levels of altruism than what most adults might expect. "If parents think that generosity isn't possible at age 2, they won't try to encourage it," says Nancy Eisenberg, an editor of the handbook and an Arizona State University psychology professor.

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Friday, October 7, 2011

How the Dismal Science Stopped Being Dismal

by Justin Fox

New York Times

October 7, 2011

Listen to the economic debates of the past couple of years, and it’s tempting to conclude that no progress has been made in the field in over half a century. There’s John Maynard Keynes on the one side, arguing for deficit spending to offset the aftereffects of a once-in-a-lifetime financial crisis. On the other side there’s Ludwig von Mises (his fellow Austrians Joseph Schumpeter and Friedrich von Hayek seem too moderate for the role), thundering that all govern­ment intervention in the economy is doomed to failure.

Keynes and Mises are of course both long dead. But it is the resilience of their ideas that makes studying the history of economics so rewarding for non­economists. As a rule, economists don’t know much about history. So at times like these, anyone with a bit of familiarity with the giants of the past can weigh in on big economic issues with about as much authority and credibility as the credentialed experts.
Alfred Marshall, in 1892

This is one explanation for the continuing popularity of Robert L. Heilbroner’s book The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers. Another is that once a book makes its way onto undergraduate required-­reading lists, as Heilbroner’s did, it doesn’t easily fall off. Heilbroner wrote his irreverent group portrait of Keynes, Schumpeter, Karl Marx, Adam Smith and others in the early 1950s while studying for a doctorate at the New School for Social Research in Manhattan. (Mises was so marginalized at the time he didn’t rate a mention.) He died in 2005, but his book lives on, with more than four million copies sold.

That kind of success makes a tempting target for imitators, and over the past decade, word spread among economics writers that Sylvia Nasar was at work on a new Worldly Philosophers — something to update and possibly supplant Heil­broner. Nasar is no knockoff artist; a professor at Columbia Journalism School and a former economics correspondent for The New York Times, she wrote what is perhaps the best economics-­related book of the past quarter-­century, A Beautiful Mind, a near-perfect biography of the game theorist John Nash.

Now Nasar’s new book, Grand Pursuit: The Story of Economic Genius, is here. As it turns out, it isn’t really a Heilbroner update. For one, it doesn’t make much chronological headway: the postwar giants Paul Samuelson and Milton Friedman get a few pages, as does the philosopher and development economist Amartya Sen, who is still alive and writing books. But the major developments of post-1950 economics are for the most part ignored. So, for that matter, are the major developments of pre-1850 economics. Heilbroner was out to provide an easy-to-digest survey of economic thought through the ages. Nasar has set herself a task at once narrower and more ambitious. She has a story to tell, a story of tragedy, triumph and, as the subtitle says, economic genius.

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Το Δόγμα της Άγνοιας


του Αριστείδη Ν. Χατζή

Books' Journal
Οκτώβριος 2011


Πήγαιναν οι αμαθείς κοντά του κι έδρεπαν ακόμη μεγαλύτερη αμάθεια. 
John Updike, Το Παζάρι στο Άσυλο


I. À la Recherche du Temps Perdu

Καθώς περνάνε τα χρόνια συνειδητοποιείς πόσο λίγος είναι ο χρόνος που σου έχει απομείνει να κάνεις όσα θέλεις. Αποδέχεσαι σύντομα την ιδέα ότι δεν θα μπορέσεις να τα προλάβεις όλα. Για έναν άνθρωπο που έχει σαν βασική του απασχόληση τις ιδέες, ένα βασικό ερώτημα είναι το τι θα προλάβεις να διαβάσεις και τι θα προλάβεις να γράψεις. Ας αφήσουμε προς το παρόν το δεύτερο. Κάθομαι λοιπόν στο γραφείο μου και βλέπω τα βιβλία απέναντί μου ξέροντας ότι πολλά από αυτά μάλλον δεν θα διαβαστούν ποτέ. Κάθε τόσο προσπαθώ να φτιάξω λίστες στο μυαλό μου με τα απολύτως απαραίτητα που πρέπει να γίνουν άμεσα:

Πρέπει να τελειώσω επιτέλους το Μαγικό Βουνό... Πόσος Ντοστογιέφσκι έχει απομείνει; Πότε επιτέλους θα βρω τον χρόνο να αρχίσω τον Proust (και θα μπορέσω να τον ολοκληρώσω); Θα πρέπει να βάλω τον David Foster Wallace και τον Jonathan Franzen σ’ αυτή τη λίστα; Έχω να διαβάσω την Οδύσσεια από το γυμνάσιο και ο Μαρωνίτης σε λίγο θα ολοκληρώσει και την Ιλιάδα

Το δυσκολότερο όμως είναι να επιλέξεις ανάμεσά τους. Ποιο είναι το κόστος ευκαιρίας του κάθε βιβλίου; Τι θα θυσιάσεις όταν το διαβάσεις; Τι δεν θα διαβάσεις και τι άλλο δεν θα κάνεις (γιατί στην ζωή δεν υπάρχουν μόνο τα βιβλία); Στο γκρεμό αυτού του σκληρού κόστους ευκαιρίας έχουν πέσει πολλές εναλλακτικές αλλά εγώ τον βλέπω περισσότερο ως τον Καιάδα των βιβλίων: Ο Οδυσσέας του Joyce έχει πέσει από τα πρώτα και χωρίς μεγάλες τύψεις. Τι θα κάνω με τον Shakespeare; Θα μπορέσω να τον διαβάσω κάποτε στο σύνολό του – κι αν απογοητευτώ όπως ο Tolstoy; Χωράει στο πρόγραμμα ο Τσίρκας; Να προτιμήσω τον Πλούταρχό ή τον Balzac;

Δεν συζητάω καν για τα αμέτρητα επιστημονικά βιβλία που θέλω και πρέπει να διαβάσω, τα άπειρα επιστημονικά άρθρα και κείμενα που έχω σώσει στον υπολογιστή μου και κυρίως τον χρόνο που απαιτείται για να σκεφτώ πάνω σ’ αυτά. Απελπισία…

Έτσι αγαπητέ αναγνώστη κάθε γραμμή αυτού του κειμένου είναι για μένα πολύ ακριβή γιατί πρόκειται να αναφερθώ σε ένα από τα χειρότερα βιβλία που έχω διαβάσει τα τελευταία είκοσι χρόνια. Δεν φτάνει που το διάβασα, γράφω τώρα και γι’ αυτό.

Διαβάστε εδώ το υπόλοιπο του κειμένου όπως δημοσιεύθηκε στο Books' Journal (PDF)


Ο Αριστείδης Χατζής είναι Αναπληρωτής Καθηγητής Φιλοσοφίας Δικαίου & Θεωρίας Θεσμών στο Τμήμα Μεθοδολογίας, Ιστορίας & Θεωρίας της Επιστήμης του Πανεπιστημίου Αθηνών. Από το 1993 έως το 1999 σπούδασε θεωρία δικαίου και οικονομική ανάλυση του δικαίου στο Πανεπιστήμιο του Σικάγο, από όπου έλαβε και το διδακτορικό του.

Εδώ θα βρείτε την επίσημη ιστοσελίδα του βιβλίου The Shock Doctrine και εδώ την προσωπική ιστοσελίδα της Naomi Klein.

Εδώ θα βρείτε την εξαιρετική κριτική του βιβλίου της Klein από τον Johan Norberg και εδώ άλλο ένα σχετικό συντομότερο κειμενό του. Δες επίσης εδώ (NYT) και εδώ (TNR) για τις κριτικές του βιβλίου στα δύο σημαντικότερα κεντροαριστερά έντυπα των Η.Π.Α.

Εδώ θα βρείτε την πολύ ενδιαφέρουσα βιβλιοκριτική του Διονύση Γουσέτη για το Δόγμα του Σοκ. Μια εξίσου ενδιαφέρουσα βιβλιοκριτική για το βιβλίο του Roche από το Μιχάλη Μητσόπουλο ("Κι όμως, η Goldman Sachs δεν κυβερνά τον κόσμο") δημοσιεύθηκε στο τεύχος 17 (Απρίλιος 2011) του Athens Review of Books. Δυστυχώς δεν υπάρχει διαθέσιμη online.

Εδώ και εδώ θα βρείτε δύο σχετικά κείμενά μου για την ψευδοεπιστήμη και τις θεωρίες συνωμοσίας και εδώ ένα αφιέρωμα στον Milton Friedman που δημοσιεύθηκε στην Ελευθεροτυπία μετά τον θάνατό του. Περιέχει μέσα και ένα δικό μου κείμενο.

Εδώ θα βρείτε ένα κείμενό μου για την επίσκεψη του Milton Friedman στη Χιλή.

Περισσότερα για τη σχολή του Σικάγο μπορείτε να βρείτε στις παρακάτω ιστοσελίδες:

University of Chicago
University of Chicago Department of Economics
University of Chicago Law School
University of Chicago Booth School of Business
George J. Stigler Center for the Study of the Economy and the State
The Becker Friedman Institute for Research in Economics
Freakonomics
Wikipedia entry

Εδώ μπορείτε να δείτε ένα εξαιρετικό σύντομο video για τη σχολή του Σικάγο:

video

Εδώ θα ακούσετε μια πρόσφατη συνέντευξη στο Bloomberg ενός τυπικου μέλους της Σχολής του Σικάγο, του Καθ. John Cochrane.

Εδώ θα βρείτε το βιβλίο της Naomi Klein αλλά και σοβαρά βιβλία από και για τη Σχολή του Σικάγο:

Ενώ εδώ θα βρείτε τα σημαντικότερα έργα του Milton Friedman:

Charging for Debit Cards Is Robbery

by Lloyd Constantine

New York Times

October 6, 2011

When Bank of America told its customers recently that it would start charging them $5 a month to use debit cards, it argued that it was forced to make that change because of regulations that altered the economics of the cards. Other banks agreed. The chief executive of JPMorgan Chase, Jamie Dimon, put the effects of the regulations this way: “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.” Both banks were responding to the Federal Reserve’s actions to limit the interchange fees banks charge stores each time a debit card is used for a purchase.

But the banks’ simplistic statements are merely an attempt to rationalize and obfuscate one of the largest illegal transfers of wealth from consumers to banks in American history.

Debit cards were developed by banks as a replacement for paper checks. When a consumer pays with a debit card instead of a check, the bank saves money. In the 1980s, Visa calculated the savings at 55 cents to $1.60 per check. The savings is much higher today. For decades, Bank of America, the founding owner and member of Visa (originally called BankAmericard) and all of the Visa and MasterCard banks, including Chase, hid the identity of their debit cards from stores by designing them to look and function like their signature authorized credit cards and by charging stores the same price for debit and credit transactions. Banks did this despite the fact that purchases made with a debit card didn’t involve a loan from the bank, posed very little fraud risk and were extravagantly profitable to banks because they eliminated the costs of processing and clearing checks.

More

For the debit cards fee controversy see also here, here, here, here and here.

What debit card fee critics miss on capitalism

USA Today
Editorial
October 6, 2011


Ever since Bank of America announced a new $5 monthly fee on debit card use, an outcry has echoed from Main Street all the way to the White House. A Fox Business anchor cut up her BofA debit card on the air in front of a sign that read "Big Bad Bank of America." Sen. Dick Durbin, D-Ill., told BofA customers to "get the heck out of that bank." President Obama slammed the charge as a bad business practice. And Consumers Union called on Congress and regulators to investigate the new fee, which will go into effect in early 2012.

Let's everybody take a deep breath. The uproar is as misguided as Bank of America's action was predictable, and the action masks a hidden benefit for consumers.

BofA and other commercial banks are about to lose revenue from an amendment passed last year that caps the "swipe fees" retailers pay every time a consumer uses a debit card. The amendment, championed by Durbin, made sense because such debit card transactions cost banks virtually nothing. The fees, paid by retailers to card issuers, were a hidden tax on consumers in the range of 1% to 3%.

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For the debit cards fee controversy see also here, here, here, here and here.

Investigate 'unfair and abusive' bank fees

by Pamela Banks

USA Today

October 6, 2011

It would be tough to come up with a worse time for Bank of America to saddle customers with a $5 fee every month they use their debit card. The nation's largest bank has been struggling mightily, yet it is apparently willing to drive away customers with more fees. Taxpayers rescued Bank of America with a $45 billion loan, and now it's about to take advantage of many of the same taxpayers by making them pay extra money, just to be able to use their money.

That's why we think Congress and federal regulators should investigate and ask Bank of America how it can justify this fee. The bank may argue it has to make up for lost revenue from fees collected from retailers, fees the law now says are excessive. But banks can still collect an average 24 cents from retailers every time a customer makes a debit card purchase. That's more than the average 8 cents the Federal Reserve estimates it costs a bank to process a debit purchase when you use a PIN number.

It seems abusive and unfair for Bank of America to slap an additional $5 monthly fee on consumers for debit card purchases, even when consumers use the card only once that month. This decision comes as millions of Americans are already struggling with a whole raft of dubious fees, and this one doesn't even appear to be linked to the real cost of providing the service.

More

For the debit cards fee controversy see also here, here, here, here and here.

Wednesday, October 5, 2011

The democratic transition

by Fabrice Murtin and Romain Wacziarg

Vox

October 5, 2011

As witnessed during this year’s Arab Spring, democracy doesn’t always emerge smoothly. This column examines the long march toward political freedom since 1800. It argues that while both income and education affect democracy, the rise in primary education has been the main driver of democratisation over 1870-2000.


Throughout history the march toward political freedom has not been a smooth process. It has happened in fits and starts, in waves, and was often reversed or interrupted. The collapse of several Middle Eastern authoritarian regimes in the wake of this year’s Arab Spring illustrates the point clearly.

Political institutions have undeniably progressed from autocracy to democracy over the last 200 years. Figure 1 displays this democratic transition by plotting over time a commonly used index of democracy (the Polity IV democracy score, rescaled between 0 and 1), averaged for a balanced panel of 14 countries since 1800. The figure illustrates some fits and starts – for instance the interruption of the march to democracy during the interwar period – but also a generalised upward trend. Like the demographic transition, economic modernisation, and the globalisation of human activities, democracy seems to have pursued an inexorable march.

Figure 1. The democratic and economic transitions


Note: (Balanced sample composed of Austria, Belgium, Chile, Denmark, France, Japan, Netherlands, Norway, Portugal, Spain, Sweden, Turkey, the UK, and the US over 1800-2000).

What factors determine the transition toward democracy and its durability? This is a classic question in political economy, but not one that has yet been resolved. On the eve of the 19th century, Thomas Jefferson was defending the view that mass education was the “the most effectual means of preventing tyranny” (Jefferson 1779). In line with the Founding Fathers’ vision, the US turned into a leading country in terms of educational attainment, leading Alexis de Tocqueville (1835) to note in Democracy in America that “the education of the people powerfully contributes to the maintenance of the democratic republic”. The idea that the accumulation of human capital and economic modernisation more broadly create the conditions for sustained democratisation found a more recent consecration in the writings of Seymour Martin Lipset, who in 1959 introduced the ‘modernisation hypothesis’, arguing that economic development is a precondition for democracy. While international comparisons initially supported this hypothesis (Barro 1999), scholars still debate the issue, as many argue that causality runs instead from institutions to development.

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Sunday, October 2, 2011

Religion makes people happy, so why is church attendance declining?

by Bruno S. Frey and Jana Gallus

Vox

October 2, 2011

Is religion a ‘crutch for the weak’? This column looks at data on religion and life satisfaction from across the globe and argues that it might just be insurance for the unhappy.

Modern happiness research leaves no doubt that religious people are happier than their contemporaries. And the causality runs from religion to happiness (though it might also be possible that religious people are less interested in material aspects and, therefore, less affluent).

  • One of the studies supporting this assumption was provided by Headey et al. (2010). Based on data from the German Socio-Economic Panel, they find that individuals who turn to religion over time become, ceteris paribus, more satisfied, while those turning away from it suffer a loss in their quality of life.
  • A comparison of multivariate estimates of happiness functions shows that, even when controlling for other influences, deism is highly positively correlated with life satisfaction across all countries (Frey and Stutzer 2002, Dolan et al. 2008, Frey 2010).

In the US, for example, 48% of those who describe themselves as "very happy" attend church service at least once a week; this compares to a share of merely 26% made up by those who never go to church (Pew Forum on Religion and Public Life 2007).

But the relevance of these results is not only restricted to the individual level. Focusing on whole countries as units of measurement, receding religiousness could be a predictor of a decline in life quality, all other factors held constant. Given the fact that life satisfaction eventually also influences productivity, it becomes clear why the topic should be policy relevant.

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Saturday, October 1, 2011

Does services liberalisation benefit manufacturing firms? Evidence from the Czech Republic

by Jens Matthias Arnold, Beata Javorcik and Aaditya Mattoo

Vox

October 1, 2011

Compared to the goods sector, we know relatively little about the effects of trade liberalisation on the services sector, despite this being the main employer in many countries. This column presents firm-level data from the Czech Republic that suggests that services sector reform can improve the performance of domestic manufacturing firms – something that protectionist sympathisers should be wary of.


Services liberalisation is a controversial subject, as is evident from recent policy debates in the EU and WTO. The scope for controversy is deep and wide. In contrast to the large body of empirical research on the impact of trade liberalisation in goods, little is known about the effects of allowing greater foreign entry in services industries. As Francois and Hoekman (2010) note, “services have not figured prominently in the economic growth and development literature, and have only recently been highlighted in the trade literature”. Since a wide range of manufacturing and services industries rely on services inputs, it seems reasonable to presume that large gains could be achieved through the liberalisation of services sectors.

In a recent paper (Arnold et al. 2011), we provide empirical evidence on the link between reforms in services sectors and the productivity of downstream manufacturing industries. Our analysis focuses on the Czech Republic, which introduced far-reaching reforms of services industries during the 1990s, including opening services sectors to foreign investors. The results, based on firm-level data for the period 1998-2003, suggest a positive association between liberalisation in services industries and the productivity of manufacturing firms using services inputs. Allowing entry of foreign services providers appears to be a key channel through which services liberalisation benefits the manufacturing sector.

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