Public Procurement for Gun Control

The issue of gun control is one that often lacks very clear and dispassionate analysis because it is understandably laden with lots of political assumptions and ideological debate. And so as the tragedies of individuals going berserk and killing a large number of people at ago happen, the heat comes up again without much light. Indeed, I have stated in a number of posts including this one that the standard arguments are rehashed every now and gain.

That Eliot Spitzer is a clear-headed thinker with a good grasp of the ability of government to lead to public good is something that I increasingly appreciate as he writes columns for Slate magazine each week. In this article today, he presents the novel idea that given the constitutional protection for hand gun possession in the US, the federal government should utilize its monopsony power to ensure good conduct from manufacturers and sellers of firearms.

This is an impressive idea for two reasons, one it goes around the assumed constitutional barrier and the difficulty of amendments without attempts at coercion. Secondly, it recognizes the fact that it is essential to give firearms sellers an interest in keeping its largest buyer satisfied by keeping handguns away from criminals. I must state here that this would be useful because it would be in the federal government's right to amend its procurement policy accordingly without the wholesale condemnation of arms owners. It is obvious that this policy would not necessarily wipe out all misuse of firearms but make it really difficult for criminals to acquire guns that they will then use in committing crime.

What is often lacking in this debate are clear alternatives that are constitutionally defensible and this is surely one of them. A five star article.

Yankees Respond to Empty Stadium

In an blog post a couple of days ago, I made a comment discussing the fact that two of the major baseball franchises in the US were having trouble in selling seats in their new stadiums. In that post too, I suggested that the two teams had probably over-estimated the prices for the seats and would be compelled to reduce those prices and ensure that they are taken up. A follow-up article in the NYT by Richard Sandomir confirms that the Yankees have made adjustments to their ticket prices in response to the fact that 15% of seats that remain unsold.

The rather quick response has involved the reduction of prices for season tickets by a range of 35-50% together with the option of refunds. However for the more expensive spots, the franchise has provided a one extra seat for every ticket held. essentially, this amounts to a 50% price cut even though the holders of these prime tickets cannot claim refunds. All one hopes is that they would allow the ticket holders to reassign or trade these extra tickets. After all, the franchise needs to fill the stadium.It is also interesting that the economists advising on this matter got it spot on and agreed with the suggestion in the blog post, by arguing for temporary reduction in prices because the recession will indeed pass and the demand will pick up again.

What is the Mets waiting for?

Pascal Lamy on Protectionism

Pascal Lamy, the Director General of the WTO gave this lecture at the Peterson Institute in Washington DC late last week. Knowing that it was probably delivered as as well as it is written, I am struck by the defence to open international trade that it advances. Granted that most of the arguments deployed are pretty standard for a student of economics, it is essential that there is a proper and lucid defence of the value of open markets at this time. It states that trade is essential but is not sufficient unless supported by a compatible domestic policy.

But more important in Pascal Lamy's lecture is the fact that he plainly attacks the popular fallacy that protectionism during a recession is sound economic policy. Speaking with concern for low-income countries, he states that higher income countries may be able to afford protectionism as they can more easily absorb the costs. This is a poignant point for the reason that beggar thy policies are comparatively less damaging to higher income countries that the rest. So while it may be politically profitable to respond to domestic pressure and hike tariffs, lower income countries should be most reluctant to be populist at this time.

That the economic crisis facing the world today will come to an end is without doubt. Hence the injunction from Pascal Lamy that policy with adverse effects would be especially costly when the recovery arrives. In the spirit of not wasting a crisis, astute governors should take the opportunity to prepare for the recovery since openness will be valuable at that time. Economies that are more open will be ahead when the recovery comes.

Being that the Doha Agenda has long been on the table for the World Trade organization, Pascal Lamy reiterates its relevance by responding to skeptics who have made comments suggesting that the promise of its conclusion is substantially eroded. In spite of the good defence, it is the on the status of Doha that I am least inclined to agree with Lamy's assessment. Indeed, I consider that the promise of Doha is less worthy of debate than the realism of its conclusion.

Mets and Yankees in Empty Stadiums

A story in the NYT today got me thinking about what the effect of the ongoing economic crisis is having on a variety of industries. The story talks about the disappointment of the New York Mets and the New York Yankees in their inability to get season ticket buyers for the the most valuable seats in the stadiums. I find the story worthy of blogging about because the real effects of the economic crisis on a variety of sports franchises is not as widely discussed.

However, I still think that the writer missed a couple of important points. The main one being that to compare the uptake of tickets between seasons is fine but it is less valid when the the seasons being compared have been as different. They may be twelve months apart yet the fluctuation in pertinent factors makes the comparison completely invalid. Secondly, it may help to consider what the average yield per seat is as opposed to considering only whether the new stadium is filled or not.

In sum, it is clear to me that the recession has obviously affected the disposable incomes all around. Season ticket holders of the best terraces are bound to be less affected but are probably keen to preserve their cash at this time by cutting back on luxuries. On the other hand, it may well be that the two teams have merely overestimated the value of the season tickets for the highest-value spots on their stadiums. Since they require all additional revenue, they should institute a temporary readjustment in prices by auctioning the tickets for a month or a season at a time both to preserve the value of the season-ticket holders and to bring in as much revenue as is possible.

What Does India's Democracy Show?

I think that the most fascinating countries to study in the world are the two democracies India and the United States. The reason being that the first was based on an idea and represents a very bold early experiment with freedom and consent by the governed. India, on the other hand was already a very large country and one with a large but poor population when it was formed as a republic in 1947. With almost a threefold growth in its population, India is today rightly considered as the world's largest experiment with democracy.

While I think that India's democracy is still growing and imperfect, I am impressed with the fact that this large country retains the urge to ensure popular voice in public affairs and especially in the appointment of its leaders. As any reader of this blog would probably be aware, elections in India are due. As this article in the Guardian states, it is still a miracle that its people are very enthusiastic about the elections.

Most impressive is the cost of the elections and the logistical arrangements that holding elections that qualify as such require. Consider that nearly 1 million electronic voting machines have been procured for the voting that will stretch over five phases over four weeks. Of the more 820,000 polling stations that have been situated across the country, it has been calibrated to ensure that no vote bearer is more than 2 kilometres from any one.

No wonder many large and small nations fear representative democracy because the basic institutional competence that is required to deliver a proper election of any size is very high. That Indian citizens are determined to maintain the experiment is part of my confidence that in the long term, India will most probably be one of the leading economies in Asia. No one should underestimate the capability of a country whose number of voters is twice the entire population of the United States. In addition, my estimate based on the most populous democratic countries in the world suggests that the number of voters in India is closer to all voters in the world's most 10 populous democracies put together.

Why Ideologues Should Not Set Income Tax Policy

Setting objectively defensible tax policy is very difficult when non-economic considerations are part of the game. The reason for this is that on many occasions, taxation policy tries to achieve diametrically opposed outcomes. For instance, many people think of income taxation as not only the quest to maximize public revenues, but also for equalization of incomes. On this issue of taxation, Barack Obama did make the campaign promise to raise the income taxes of the top 5% of income earners in the US. Predictably, the political responses were the same simplistic views of hitting the rich on one side and the counter-arguments about the need to pay for public expenditures. With the economic crisis in the US today, tax policy is right in the front of debates between the major parties. This is disappointing only because the same arguments are being given especially for those opposed to the intent to increase income taxes.

David Leonhardt traces the history of income taxation policies in the Us and more particularly about the need to consider tax brackets and the incidence of the taxes. As he states, the marginal tax rates in the US have reduced substantially in the period since the last century from a high of 90% to less than 40%. But most impressive in the article is the fact that the top tax rates today kick in at a very low income level when adjusted for inflation and that at one time, the tax brackets were sufficiently broad that the marginal rate applied merely to John D. Rockefeller, an individual with a very high income.

One sees that this illustrates the fact that setting income tax policy requires trade offs related to maximization of revenues on the one hand and the ability to number of tax brackets to ensure progressivity. As matters stand, many people who are merely wealthy are subjected to the same tax rates that apply to the wealthiest people in the US. That is very difficult to justify. Consideration of the tax brackets is due as well because income tax policy is not supposed to be easy. Wat makes it confusing is that many ideologues come in with answers before the problem is even stated. The US government today needs to improve revenues and that means that raising the top tax rate is inevitable. Still, it should consider the tax fact that the marginal tax bracket kicks in at a comparatively lower level in real terms.

The Celtic Tiger Will Be Back

One of the effects of economic crises is that it leads people to even begin to question the principles that have contributed to success. It is therefore understandable that in spite of the rapid growth of Ireland, many people are questioning its ability to return to full growth and economic stability. To may people, it is as if Ireland's best days were behind it especially because of the serious problems with real estate crash, private debt ratios and now the large deficit in public finances.

Writing in the Irish Times, Peter Sutherland argues from first principles that Ireland will overcome the present crisis and resume its strong growth trend. I am in total agreement principally because Ireland's strengths have been in a very highly developed human resource base, an open economy and sound economic policy in many respects. the mere proportion of the budget deficit is not a perfect guide of the state of an economy's future.

An important lesson from the economic difficulties in Ireland is that even a country run on largely sound principles faces problems when an industry that is as large as real estate is run of debt and fails to reckon with common-sense principles. There's no reason why property prices should be assumed to run upwards in perpetuity. On the whole though, the calibre of the country's human resources and the export drive will keep Ireland as a leading light in Europe. In short, it has not lost its status and is still worthy of its name as the Celtic Tiger.

How Insurers Contributed to Economic Crisis

Tom Wilson, the CEO of the All State Insurance company in the United States pitches in here with his assessments of the contribution of insurance companies to the financial crisis. Understandably, he is frustrated by the Mea Culpas that are being advanced by mangers of insurance corporations such as AIG. In the article, he makes two significant arguments.

The first is the declaration that the attempt to excuse insurance companies is completely unjustified largely because of the fact that insurers undertake to indemnify against a loss. therefore the Credit Default Swaps that the AIG made were a form of insurance that are an extension of the business. Taking forward his point then, I confirm to myself that AIG saw the CDS's instruments as a different name for insurance policies against default in securities. I accept this argument but I do not see that an insurance corporation such as AIG is justified to add to the risks it already through conventional cover by making further undertakings in a business that it hardly understood. It is just not possible then that the risks were appropriately priced.

Secondly, Wilson points out that the fragmented nature of insurance industry regulation in the United States led to a lack of expertise in their prudent regulation. Unlike the first point, I am only in partial agreement with this point in the sense that the complexity of these instruments and their ubiquity makes nonsense of state-level regulation. However, I am skeptical that federal regulation would do better as a matter of course. My reluctance is due to the fact that the problem is not entirely about regulatory ability as the inherent risk in instruments that are not properly designed and understood, even by those who sold them.

In sum, Wilson's admission of the fault and the incisive definition of the problem of regulatory fragmentation shows that he is a prudent manager but he errs by creating the impression that regulation can take away the risk of inherently unstable financial instruments. I do not think that this should be the primary purpose of the regulation that he persuasively argues for.

The Consequences of Antony Fisher's Ideas

Antony Fisher Champion of Liberty by Gerald Frost

My review

rating: 5 of 5 stars
This book should be summed up thus: "Ideas have consequences".

Quite apart from the very interesting life that Antony Fisher led, it is significant that his most important creation is the think tank known as the Institute of Economic Affairs based in London. The book is not lengthy and speaks for itself both about the author and the big idea that led to the establishment of think tanks.

Needless to mention here was a Cambridge University trained engineer, WWII pilot, a poultry rearing businessman and the originator of the idea of the Think Tank. Later, Antony Fisher tried to rear turtles for food and lost a substantial part of his fortune but still did not fail to support transplantation of new think tanks in Europe and the north of America. Granted that the book is written by a real admirer, one does not get the impression that its subject is turned into an icon nor the details of his intellectual or business life exaggerated.

But most important is the manner in which as an entrepreneur of ideas, he made the IEA a success to the surprise of Frederich Von Hayek, who considered that such an idea would not be successful. the reasons for Von Hayek's skepticism are as important as the fact that Antony Fisher defied him. This coverage of the life of Antony Fisher is a far better illustration of the "entrepreneur as a super-hero" (sorry Libertarians) and to my mind, in a more convincing way that Ayn Rand's interesting books which tend to overstate the same facts. Truly, Ideas have consequences.

How Large Should African Farms Be?

If one thing is common in most of sub-Saharan African countries, it is the sight of families laboring in small plots of land with primitive farm implements and very little use of fertilizers and pest control chemicals. And this leads to the argument in Africa whether there's a way out of poverty for most of these farmers. Part of the argument made by Jeffrey Sachs in this book is that it is possible to tackle poverty in Africa and South Asia by a set of mutually-reinforcing initiatives. These involve interventions for the reduction of diseases, supporting farmers through inputs, reducing hunger and better education for their children.

One of the amazing assumptions that I encounter is the belief that agriculture is still the way out of poverty for most citizens of sub-Saharan Africa. Taking forward this argument, it is understood that peasant agriculture is affected by very low productivity and that it is indeed possible to substantially raise productivity through investments in the development and deployment of agricultural inputs as seeds, implements and fertilizers. Given the very low productivity of peasant agriculture, one cannot argue much with this belief.

To my mind though, the defining feature in African farming lies in the observation that agricultural land has been divided into very small and almost uneconomical units. This suggests that there will be rapidly diminishing returns to any investment aimed at raising the productivity of these farms even with the rise of Africa's expected green revolution. Anne Perkins considers the issue in this piece in the Guardian. Judging from the series of responses contained in that piece, it is still an unsettled matter. What appears to be approaching certainty is that a green revolution on its own or the consolidation of farms may not suffice.

My addition to the argument would be that there would be immense value in consolidating farms in order to benefit from scale, improving seed variety and other forms of biotechnological interventions. Peasant farming in the continent provides poor value but without any alternatives, many keep their land to farm again in the next season for lack of other employment. Surprisingly, a study by the World Bank of South African firms suggests that in spite of a public policy bias towards larger firms, smaller firms were more efficient in an overall sense. This World Bank study records the counter intuitive finding that there an robust inverse relationship between efficiency and land size in South Africa farms. I interpret this to mean that peasant farming is certainly not efficient but consolidation should be guided by the realization that there's a point at which it would not be helpful. This calls for very thoughtful policy.

Part of the solution appears to be about trying to get Africa's agricultural markets to work better. This quest towards enhancing the operation of markets would push the farms towards the ideal size depending on crop or place. As it is now, it is a clear indictment of the continent because a vast majority of its people are farmers and yet they are starved. But whatever happens, bigger farms in some area is surely part of the overall solution. The scale-efficient size for African farms will most definitely vary by geographical area.

Quoting Ben Goldacre

"If there is one great joy to be derived from scanning the scientific literature over a week, it is the barrage of studies that challenge your beliefs and preconceptions, demonstrating the weakness of intuition: because if we knew all the answers to start with, there would be no point in doing research". Ben Goldacre

I find that the regular column by Ben Goldacre in the Guardian is one of the most informative pieces of popular writing covering scientific findings and their interpretation that I can find and read. The quite above is not only well crafted but emphasizes the need for research and also that not anything that is called science is necessarilly rigorously conducted and worthy of considering for the purposes of policy or information. The column Bad Science highlights not only the large amount of junk science that is available out there but also the inability of the press corps to cover scientific findings properly.

Conficker Malware's Security Lessons

All I read about the Conficker malware was that it had sleeper instructions that it would unleash which would either disrupt the Internet generally, steal proprietary information or even attack sites for selected businesses on 1st April this year. Since that day passed without much visible effect, it is clear that that may have been either a red herring or that digital Armageddon is postponed for a later date.

Farad Manjoo's piece in the Slate Magazine dissects the worm quite clearly for a person without in-depth understanding of computer code writing and the effects of worms generally. What emerges from this is that no doubt the worm is written by a set of people with cutting edge skills and who understand the inherent weaknesses in the Internet and the economics of the software industry. This is because the malware relies on the fact that many PC users do not update their software that as regularly as would be ideal. This behavioural failure then makes the propagation of that or any other malware nearly impossible to stop.

While Farhad does not stress it enough, it is also clear that a successful fight against piracy may actually predispose the Internet to dangers from contagion with malware like this. The reason being that pirated copies of the most Microsoft software are unable to receive security patches. By keeping out the people who install pirated copies of software, the vast majority of whom are from low income countries, the developers of Conficker are sure that they will infect a minimum number of PCs that would allow the proliferation of the malware into other machines.

To my mind therefore, it becomes ironical that a mechanism that is designed to reduce software piracy is in turn leading to the unintended consequence of propagating insecurity of software for all. This trade off shows that the mechanism for the response to worms and viruses is demonstrably ineffective. As I stated in a blog post, it will not be useful to spend money in apprehension of the developers of the malware. Instead,that money should be dedicated to preemptive action in determining the security gaps in ubiquitous software and operating systems so that they may be plugged.

But the clearest response now is to review the architecture for enhancing Internet security. Since the largest growth in Internet users will invariably come from the lower income countries, the use of pirated software shows that none is safe. As Bruce Schneier has argued convincingly in this post, it may be time to consider Internet security as a public good and subsidize its development. The reality of the economics of the industry show that the real incentive to develop more robust operating systems does not exist. In sum, that the developers of the Conicker malware merely demonstrates that the incentives for software security developers and the developers of dominant operating systems are not aligned to improving overall security and failure to take this message will mean that the April Fool's joke is due in the future.