Was Invention of Agriculture a Mistake?

One always encounters the the plausible view expressed everyday that human development was greatly and unequivocally aided by the adoption of agriculture. A large number of history books attribute the initial spurt in human development to the sedentary lifestyle, trade and political organization that the agrarian societies required. This progressive view therefore permeates the history books and entrenches the underlying assumption that settled farming was vastly superior to the hunter-gatherer alternative essentially because it allowed for greater food production and subsequent accumulation of wealth.

An admittedly dated essay by Jared Diamond that I have just encountered while perusing this reading list on Brad DeLong's excellent blog not only questions the logic that the series of changes that together constituted agricultural revolution were part of the human "tale of progress". In the essay, the author states that the story behind the movement towards agriculture and its effects on human society in general has been highly sanitized. I have always been persuaded that the preoccupation with finding nutrition unduly delayed the rise of complex economies but did not imagine that archaeology would get me thinking that the the progressive narrative is highly embellished. To my mind, the essay certainly does not make as compelling an arguement for the fact that agriculture was a mistake as it does with exposing the dimunition of its many costs on individuals and societies.

Quoting Edmund Phelps

Edmund Phelps was awarded the Nobel Prize in Economic Sciences for the year 2006. The citation reads in part, "... for his analysis of the intertemporal tradeoffs in macroeconomic policy". Ralph Atkins of the Financial Times interviewed the laureate and notes that his intellectual search is not over and he comfortably expresses his doubts about the assumptions regarding equilibrium. he attributes the following quote to Prof. Phelps.

” Traditional economics, he explains, sees the world as if it were a plumbing system. “It’s basically rooted in equilibrium – things work out as people expect them to do.” Capitalist reality, however, “is a system of disorder. Entrepreneurs have only the murkiest picture of the future in which they are making their bets, and also there is ambiguity, they don’t know when they push this lever or that lever that the outcome is going to be what they think it is going to be – there is the law of unanticipated consequences. This is not in the economic text books, and my mission, late in my career, is to get it into the text books.”- Edmund Phelps

Betting Against the Neo-Malthusians

It is indeed true that Robert Malthus' "Essay on the Principle of Population" was quite influential for a long time. In spite of the grave failure of its projections and predictions, one comes across people who dust it up and use it in policy discussion every decade or so. An article in the LA Times by Niall Fergusson makes the same claim that world population growth is outstripping food supply.

As a neo-Malthusian, Fergusson admits that the earlier warnings and forecasts were wrong but thinks that the recent rise in the price of cereals and his favourite cheese should lead to the strong conclusion that the theory's predictions will catch up with the world sometime soon. Adding global warming to the mix, he thinks that the world is certainly doomed.

This is typical of believers in those grand and neat theories that favour centralized planning and predict the inexorable failures of open economies. To start with, overall world economic growth was at its highest in decades in the same year that the human being number 6 billion was born last year. So for a theory that has almost always failed to reckon with human ingenuity and increasing rates of innovation in food production and productivity in general, I bet with confidence against the theory's predictions. Dusting up Malthus' essay every decade or so will not make it's predictions come true. Food supply is not going to run out any more than people starve because of a reduction in food supply.

Profiling Prof. Susan Athey

While the conventional view is that the ultimate prize for a professional economist is to receive the Nobel prize in Economic Sciences. A strong alternative view is that the John Bates Clark Medal awarded biennially to an American economist under the age of 40 years is the superior prize. The limitation of the John Bates Clark Medal to US economists ensures that it is an exclusive prize to which an economist has only a moderately-sized window for eligibility. The Nobel Prize on the other hand appears to award a lifetime's work and the recipients are often middle-aged or older professionals. Professional economists in the US are so accomplished and are demonstrably ahead of the rest of the world that winning the John Bates Clark Medal has become a predictor for winning the Nobel subsequently.

Both prizes have been awarded for more than a generation but have never been awarded to professional female economists. This is bound to change now since Prof. Susan Athey was awarded the John Bates Clark Medal for 2007. This blogger has not read much of her work but this summary by Joshua Gans shows that we may do well to place bets on her being the first woman to win the Nobel too. I undertake to summarize her work on industrial economics in the near future because her credentials in economic theory and its applications in empirical economics are extremely solid.

Dispute Shows Limits of WTO Remedies

Settling trade disputes within the World Trade Organization is not an easy matter largely because of the convoluted rules. However, the most amazing thing is the agreed process for enforcement which requires retaliatory protection. Essentially therefore, a nation that has been harmed is allowed to institute trade penalties that reduce the imports of the violating WTO member. Now, this rule is puzzling for it is the result of a political agreement which reflects a very poor understanding of international trade theory. A country that imposes high tariffs or restricts trade with another definitely harms itself because it constrains its own firms from importing products or services. Impliedly therefore, it shows that optimal trade strategy should tend towards free trade hence measures that restrict further trade should not be part of the judgment.

The absurdity of the retaliatory protectionism is impressively in show because of an obscure trade dispute between the US and the Caribbean nations of Antigua and Barbuda. It claims that US restrictions of online gambling by its citizens is effectively an anti-trade measure that harms the complainants where some of the online casinos are based. Gary Rivlin reports here for the NYT on the dispute whose hearings have been concluded with the exception of the award. Compensation for the complainants would involve instituting retaliatory measures in the form of commensurate trade barriers against the US. Now, Antigua does not have the ability to raise trade barriers to the extent of the damages estimated US$ 3.4 billion not only because this would hardly harm the US but also because instituting such measures would be idiotic in the sense that it would harm itself. Mr. Mark Mendel, representing the plaintiff is therefore proposing the equally odd measure of being authorized to violate intellectual property laws with the expectation that the intellectual property producers would nudge the US administration to compensate Antigua and Barbuda.

This is a nice ring of the WTO instituting absurd enforcement measures on the one side together with the US unwisely banning gambling which a small nation is eager to provide to US citizens.

Growing Ireland

Ireland has been a superior performer among European countries in the last few decades and made a remarkable transition from one of the poorest countries in the continent. It is now without doubt quite a competitive economy whose citizens enjoy some of the highest standards of living in Europe and indeed the world. Apart from making proper regulatory reforms and investing in high quality human capital, it has also been mentioned by theorists that the great progress that it made were predicated on achieveing a demographic transition. This transition supposedly reduced the fertility rates hence the degree of dependency in the economy and allowed for emergence of the industrial economy.

Being a small nation both in respect of geography and population, it would be particularly prone to the standing problem of aging societies in Europe where birth rates have fallen precipitously below replacement levels. However, it seems that Ireland has again done well and is figured to be the fastest repopulating small country in the world. Eamon Quinn writes in the NYT here in a story that partly explains the approach. Unsurprisingly, it is based on somewhat flexible immigration policy and natural growth. quoted professionals state that population growth has not only ensured that the population has reached replacement but also that economic growth will be maintained. The lesson for other aging populations in Europe is pretty clear, responsible job-seeking immigrants can add immensely to the performance of an economy. Just watch Ireland.

Paying for Weight Loss

I find it fascinating that there is panic about the fact that citizens of many high-income countries are getting obese and that this translated as a worrying public health problem. Similar to the policy questions around climate change, there is no doubt that the proportion of those defined as clinically overweight and obese has risen over the last three decades. A number of people wrongly blame McDonald's restaurants and other fast foods that have altered conventional eating. A more plausible but partial explanation is the high subsidies for corn farmers that have led to a deluge of cheap corn syrup within the US.

However, the most original attempt at reversing weight loss has come from the Italian town of Varallo, whose mayor has not only direct financial rewards for weight loss. The system of cash incentives would impress any economist as it not only pays the initial $ 67 upon attainment of the ideal weight but will pay out a further US$ 268 for maintaining that ideal weight for five months thereafter. Perhaps informed by the fact that weight loss is comparatively easier than maintenance over the medium-term, the mayor has committed the town to further pay the equivalent of US$ 670 for residents who retain the ideal weight for a year more and thereby reinforce desired behavior. The story does not state it but I am thinking that the 30 upfront applicants may require enhanced payment beyond the first year to keep their ideal weight and also that the number of applicants will definitely rise.

While I am unsure about whether the mayor has conducted a proper cost benefit analysis to determine whether its overweight residents are a burden that justifies this expenditure, he gets full marks for the thought that went into the design of this incentive structure without resorting to undue compulsion. This is a sound experiment and over time, the town may be an example to cities that consider it necessary to encourage residents to loss weight. Off the top of my head, this is far more efficient than paying for a gastric bypass. I hope to visit Varallo and witness this sound experiment in applied economics. Mr. Gianluca Bonnanno should be small town mayor of the year.

Bottled Water and Global Warming

This blogger has posted variously on the value of bottled water compared to tap water in addition to stating that the latter is not only equally safe and often is a far cheaper substitute in most of the Us and other places with secure piped water. The most recent post on the subject stated broadly that the the alignment of the costs ought to ensure that the cost of disposal of plastic bottles used for water should be borne by the consumers.

An elaborate article by Alex Williams in the New York Times shows instead that the argument made by the environmental lobbies that bottled water contributes to global warming is leading to stealthy consumption and avoidance of the product. As if this needs to be stated again, bottled water consumers should save their guilt and use their good nature to campaign for a carbon tax. This would ensure that the externality generated from their consumption of bottled water is paid for in the cost of the product. Guilt is unlikely to lead to a reduction in consumption of a product that has now surpassed coffee and milk in sales within the US. Try a well-designed carbon tax!

Draw Down Patent Monopoly Period

Conventional wisdom justifies the retention of patent protection for pharmaceuticals on the assumption that corporations undertake expensive and high-risk research that should be rewarded by a monopoly to allow for recouping of investment together with a decent return. This view states that in the absence of the 20 year monopoly duration would lead to a reduction in the investment in discovery of new drugs.

Apart from the thinking that the patent period is often arbitrarily decided upon, i have recently become a deep skeptic of this argument. Here's an interesting article in the NYT by Stephanie Saul covering the rising demand for generic drugs following the expiry of the patent period. The piece claims that the monopoly period for a number of blockbuster drugs will lapse in a short while and yet there is no evidence of a new generation of equally useful drugs.

It begs the question whether the monopoly period did not lead to new research and production as is often argued. Industry speakers quoted in the article suggest that the set of diseases now being subjected to research are not as easily amenable to discovery because of the scientific gaps in knowledge about them. That may be true as well but it merely confirms the fact that the monopoly period of 20 years for pharmaceuticals provides no guarantees that drugs will be produced. Instead, it states that pharmaceutical production and research policy should be guided by the intention to make as many drugs as possible available in generic form. Perhaps the place to start is to review patent policy by a drastic reduction of the patent monopoly period.

New Design to Cut Crime?

As the total amount of property that people own increases, so does the probability of loss of that property. These losses could be caused by theft or neglect but still represent a real disadvantage to the affected. The government of the UK is now urging designers to improve the design of items so that the number of thefts and crimes are reduced. This story by BBC News states that this has been encouraged by the reports that improvements in vehicle designs have reduced vehicle thefts by up to 51%. While I admit that I have not reviewed the data, it is pretty clear to me that this may indeed be a hasty generalization.

First, I am curious about the underlying assumptions and the tone of the government in seeking to compel designers to produce goods that meet that criteria especially since the public appears not to demand it yet. The reason here is that if that kind of theft-proof design were really in high demand, then the designers would have produced it without government intervention. Second, it is not clear either that the driving motivation for designers should be deflected from ease of use and enhancing user experience towards ensuring that a third party may not appropriate that good. Thirdly, the need for compliance with a rule that requires theft-proof equipment could raise the costs of equipment and products for those who do not wish to pay for that advantage.

In fairness, the article does not yet suggest that there will be compulsion for designers but I am worried by its tone because it suggests that the prevention of the theft of products should overwhelm other business considerations. To my mind, the potential for loss of valued property is part of the reason that insurance companies to exist and the upfront compulsion of design to reduce theft may not be the best way to spend the additional resources. Personal property is a tenet that i value highly but I must recall that the human element of carelessness explains a great amount of losses that people incur. That is unlikely to be reduced entirely by theft-proof design. The Home Office must be very hopeful that every mobile phone buyer will want to pay more for an improved design.

Another Lesson on Illegal Drugs Policy

Governments world over develop anti-narcotics polices with due regard neither to the lessons of past actions nor the realities of the economics of illegal goods. Fuzzy thinking now is wedded to the idea that terrorist groups are raising money from sale of opium in Afghanistan and that an additional objective of the fight against the Taliban is to eradicate opium cultivation.

As if the lesson was still required, Willem Buiter, a profesor of economics at the LSE, states in the Financial Times why the expenditures on eradication and military response are unjustified. This symbolic show of toughness ought to be saved for the Taliban and not to the farmers seeking a livelihood. he makes the strong case for legalization with taxation to pay for the treatment of users who may have developed a dependency. Otherwise, the continuing ban works to the advantage of the organized crime groups because only they can meet demand.

The area of narcotics policy is an appropriate one for multilateral action and rules. When nations decide that the views supporting a law and order approach to narcotics policy should be reviewed, they will know what to do.The unpleasant truth of decades spent fighting expensive but ill-informed drug wars is out there.

Paying for Pilgrimages

Many nations provide hidden or direct subsidies for activities by arguing that these activities have special value or under the infant industry argument. This article under the Reuters Africa news service states here that the government of Nigeria will scrap all subsidies for religious pilgrimages. Why any government should pay for any adherent to visit a holy site beats me.

Economic theory states that subsidies are almost always inefficient because they lead to the overproduction and consumption of goods or services beyond a level that would be cleared by the market mechanism. For this reason, subsidies lead to unintended consequences while distributing income and constraining the proper use of the money.

So one must support the abolition of the subsidies and stress that their withdrawal ought not to be justified only on grounds of high costs to the treasury. Public money ought not be used to support purely religious activities in a republic. With respect to the future pilgrims, their trips ought to be paid for by the consumer of that undeniably important service. This would allow for the theory of revealed preference to be tested. The pilgrimages must go on but the 25% subsidy should not even have been initiated in the first instance. Good decision by that government.

Carbon Taxes and Bottled Water

This editorial piece in the New York Times today argues the valid case that citizens of the US would be better served by drinking water from the tap as opposed to buying bottled water. It extends the argument by alluding to the environmental cost of bottling several million liters of water when a cheaper and ready substitute is available.

Earlier posts here and here questioned the real value of bottled water especially taking into account the existence of tap water as a substitute. I suspect that this is a lifestyle aspiration in addition to ignorance that makes consumers susceptible to the view that bottled water is safer for consumption. The expenditures in consuming up to 8 glasses per day amount to US$ 1400 against 49 cents for bottled and tap respectively. This is a compelling argument for a person who may need to save that much money. That it is has not led to reductions probably show that there's a stronger motivation informing that choice.

The environmental argument about the contribution of plastic bottles to environmental degradation merely shows that the taxes are not appropriately aligned and bottled water consumers ought to take up the cost of the disposal of the bottles. In addition, were a carbon tax to be instituted, the consumers of bottled water would fully pay for their contribution through their consumption choices.

OFT Fines British Airways for Price Fixing

Competition policy and law is an area of economic regulation that I favor for the reason that fostering competition between firms has obvious advantages for consumers of services. The prevalence and extent of cartel behavior and collusion between firms is sometimes difficult to accurately determine. This is because the ability to undercut co-conspirators in a collusive arrangement is a highly likely event. So the ability of the rest to retaliate is critical in keeping a collusive agreement going.

The BBC news reports here that the Office of Fair Trading levied a fine of up to £121.5m on British Airways following its admission to having colluded to fix fuel surcharge with Virgin Atlantic. I see this as very poor economic reasoning and enforcement of competition policy because Virgin was granted absolute immunity for reporting the collusion. The motivations of Virgin in seeking to collude notwithstanding, the outcome does not make any sense as Virgin registers a financial advantage over its competitor while appearing as the more virtuous firm. The equally guilty tale-teller is pampered.