Green from the Grassroots

by Elinor Ostrom

Project Syndicate
June 12, 2012

Much is riding on the United Nations Rio+20 summit. Many are billing it as Plan A for Planet Earth and want leaders bound to a single international agreement to protect our life-support system and prevent a global humanitarian crisis.

Inaction in Rio would be disastrous, but a single international agreement would be a grave mistake. We cannot rely on singular global policies to solve the problem of managing our common resources: the oceans, atmosphere, forests, waterways, and rich diversity of life that combine to create the right conditions for life, including seven billion humans, to thrive.

We have never had to deal with problems of the scale facing today’s globally interconnected society. No one knows for sure what will work, so it is important to build a system that can evolve and adapt rapidly.

Decades of research demonstrate that a variety of overlapping policies at city, subnational, national, and international levels is more likely to succeed than are single, overarching binding agreements. Such an evolutionary approach to policy provides essential safety nets should one or more policies fail.

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The Death-Penalty Debate Represents a Market Failure

by Betsey Stevenson and Justin Wolfers

Bloomberg
June 12, 2012

The debate over the death penalty offers a vivid illustration of a tragic flaw in the market of ideas: Strong beliefs attract a lot more attention, and can have a lot more influence, than the truth.

In recent years, five U.S. states have eliminated capital punishment, and several others are currently reconsidering their policies. Advocates of the death penalty insist the moves will lead to more murders. They point to a number of studies conducted over the past couple of decades that purport to find clear evidence supporting their view. Experts happily serve up unequivocal congressional testimony, and feed their analyses to lobby groups.

The reality, unsatisfying and inconvenient as it may be, is that we simply don’t know how capital punishment affects the homicide rate. That’s the conclusion of the National Academy of Sciences, which typically plays the role of impartial arbiter in these social-science debates. Their expert panel recently concluded that existing research “is not informative about whether capital punishment decreases, increases, or has no effect on homicide rates,” and that such studies “should not influence policy judgments about capital punishment.”

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Happyism: The creepy new economics of pleasure

by Deirdre N. McCloskey

The New Republic
June 8, 2012

In the first panel of a Peanuts strip—the preceding ones had been about Lucy scolding her little brother, Linus, for not being a good brother—Lucy asks what Linus is offering her: “What’s this?” “A dish of ice cream.” Then Linus explains: “I brought it to you in order that your stay here on Earth might be more pleasant.” She smiles genially, and uncharacteristically: “Well, thank you ... You’re a good brother.” In the final panel, Linus walks away smiling: “Happiness is a compliment from your sister!”

That about sums it up. Pleasure is to be achieved by things like dishes of ice cream. Psychologists have shown rigorously that people are most pleasured exactly as you might have thought if you are a human being: when eating, say, a heaped pastrami on rye at Manny’s Deli off Roosevelt Road in what was once the garment district of Chicago. Happiness, by contrast, is more complicated, though it can also be pursued at Manny’s. It is the pleasure of kosher comfort food, down to the diminishing marginal utility of that last bite—but it is also expressing one’s urban identity and Chicago-ism, even at the costs of the considerable inconvenience in getting to Manny’s and braving the insults of the countermen. It is introducing your friend, a naïve gentile, to the Jewish side of the City of the Big Shoulders, affirming thereby your philo-Semitism. It is participating in the American democracy of a 1950s cafeteria. It is facing, too, the cost of a little addition to the love handles. And it is a compliment from your sister. Pleasure is a brain wave right now. Happiness is a good story of your life. The Greek word for happiness is “eudaimonia,” which means literally “having a good guiding angel,” like Clarence the angel in It’s a Wonderful Life. The schoolbook summary of the Greek idea in Aristotle says that such happiness is “the exercise of vital powers along lines of excellence in a life affording them scope.”

But nowadays there is a new science of happiness, and some of the psychologists and almost all the economists involved want you to think that happiness is just pleasure. Further, they propose to calculate your happiness, by asking you where you fall on a three-point scale, 1-2-3: “not too happy,” “pretty happy,” “very happy.” They then want to move to technical manipulations of the numbers, showing that you, too, can be “happy,” if you will but let the psychologists and the economists show you (and the government) how.

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Sale of visas: A smuggler’s final song?

by Emmanuelle Auriol and Alice Mesnard

Vox
June 4, 2012

Is there a way of eliminating human smuggling? This column argues it can be done that by legalising migration through the sale of visas at a price that pushes smugglers out of business. The resulting trade-off between eliminating human smuggling and controlling migration flows can be dealt with the right policy mix of traditional repressive instruments and innovative pricing tools.

Each year, an estimated 2,000 people drowned on their migrant’s journey from Africa to Europe (The Economist 2005) and many more on other routes. Not only is crossing borders illegally a dangerous operation but it also entails very high financial costs. For border crossings such as from Mexico to the US, human smugglers can charge up to $4,000, while trans-pacific crossings of Chinese immigrants to the US cost above $35,000 in the mid-90s and have since increased sharply.

With estimated revenues of around $5 billion a year in the US and €4 billion in the EU (Padgett 2003), people smuggling is a lucrative business. Over the years, it has integrated with other types of illegal activities such as drug shipping and prostitution. Led by international criminal organisations they pose a threat to the rule of law in countries of origin, transit, and destination.

Although it is important for policymakers to understand why these illegal activities and their associated criminalities are so prevalent, there are surprisingly few studies on the supply side of illegal migration (noticeable exceptions are Friebel and Guriev, 2006 and Tamura, 2010, as surveyed by Mahmoud and Trebesch 2010). Yet, it is important to study the industrial organisation of human smuggling, notably smugglers’ pricing and supply of services, to explore what type of economic policies can be implemented to fight against them.

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Capitalism

by Richard A. Posner

The Becker-Posner Blog
June 3, 2012

I agree wholeheartedly with Becker that capitalism is a superior economic system to any other that has been tried, the others being mainly socialism and communism. The best evidence for this is that out of the 194 countries in the world, I can think of only two that are not capitalist—Cuba, which however is moving slowly in the capitalist direction, and North Korea, the greatest economic failure on the planet.

But this statistic indicates that capitalism is a necessary condition of economic success rather than a sufficient condition. Many of the world’s countries, though capitalist, are basket cases—not as badly off as North Korea, but plenty badly off. Per capita incomes in rich capitalist countries such as the United States, Canada, Germany, Britain, and Japan greatly exceed per capita incomes in poor capitalist countries, which are the majority of countries.

So the big question is, given capitalism, what else does a country need in order to prosper? We know that it doesn’t need abundant natural resources or a large population. But it needs a legal and political system that protects property rights, allows a large degree of economic freedom, minimizes corruption, controls harmful externalities (like pollution) and subsidizes beneficial ones (like education), distinguishes between equality of opportunity (which it promotes) and equality of incomes (which it promotes only to the extent of combating poverty), welcomes and assimilates skilled and wealthy immigrants, and (related to protecting economic freedom) avoids public ownership or control of economic enterprises. To create and maintain such a legal and political system a country also requires a culture of respect for business success, of competition and risk-taking, and of consumerism—since, as Keynes argued, consumption drives production.

Such a combination is difficult to achieve; no nation has achieved it. The variance across nations in culture and in institutional structure is very great, and determines the relative economic success of the different nations.

Since there is so much variance across capitalist countries—so much that can go wrong with a capitalist system because of the complex institutional structure and social culture that capitalism requires if it is to be maximally successful in contributing to social welfare—we need to avoid complacency. Complacency was a major factor in the surprising economic collapse that began in September 2008, a collapse the consequences of which are still very much with us.

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Profits, Competition, and Social Welfare

by Gary S. Becker

The Becker-Posner Blog
June 3, 2012

The financial crisis and the resulting recession have led to a strong reaction in many countries against the profit motive and private enterprise. Left of center political parties are gaining office and power in France, Mexico, Greece, and elsewhere with the promise of much greater regulation of banks and other businesses, renationalizing some companies, and constraining profits through higher taxes and other ways.

It is easy to sympathize with the hostility to the many banks that behaved (in retrospect) so foolishly in ways that damaged everyone else as they took on excessive risk in their quests for greater profits. One can understand also the general reaction against capitalism and “market failures” since commercial and investment banks were in the past a leading example of capitalism at work. Yet anyone concerned about the welfare of the poor and middle classes should resist the temptation to attack competitive private enterprise and capitalism- monopoly or crony capitalism should be deplored. This is only partly because “government failure” also contributed in an important way to the financial crisis as regulators did not rein in the asset explosion of banks and households. Indeed, regulators often encouraged lending to lower income families to buy houses with low down payments, large mortgages and ballooning interest payments.

The main reason to be concerned about the attacks on competitive capitalism is that it has delivered during the past 150 years so much to all strata’s of society, including the poor. I will try to demonstrate this not with a general analysis, but with several rather impressive examples.

China in 1980 was among the poorest countries in the world. It had just gone through the Cultural Revolution and the Great Leap Forward that contributed to the deaths of tens of millions of rural and other Chinese. In desperation, a few farsighted Chinese leaders decided to allow private enterprise and capitalism to gain a toehold in its agricultural sector. To the great surprise of many Chinese political leaders, the result was an explosion in farm output, even though farmers had only tiny plots of land to work with. Seeing the success of the liberalization of farm output, China extended the incentive system to industry by encouraging the growth of private enterprises in some sectors. Again, the results far exceeded expectations as these private companies, many owned by Taiwanese and Hong Kong residents, were not only far more efficient than state owned enterprises, but they also became the leaders in the rapid expansion of exports from China to the US and other countries.

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