...Author Archive

Mommy, when I die…

…can I go and live where the economists live? It must be a Better Place.

I like Brad DeLong. I really do. But, this is “grasping reality with both hands”?

You see, trade balances. What we buy equals what we sell, in value. What we buy and what we sell can be goods, services, or property, but it balances. If we have a comparative advantage in nothing — and export nothing — then we necessarily have a comparative disadvantage in nothing — and import nothing. Trade is thus an opportunity for us to move workers out of occupations where we are least and into occupations where we are most productive.

Now, don’t get me wrong. I’m a believer. I’m sure that, eventually, trade does balance. Moments — like now — where it does not are imperceptible flashes beneath the serenity of the stars. Just a comma, you might say.

But, you know, a nanosecond in the eyes of God is long enough for many of the former comparative advantages of a few little countries to, you know, disappear.

“Balderdash!”, the economists will tell you, from their better place. Comparative advantage can never disappear. That is what the weasel-word “comparative” is about. Look on the bright side! If you are comatose and drooling, you have a real opportunity-cost advantage! Your comparative advantage as a human paper-weight is unassailable!

When the “comparative advantage” of the places in the world accustomed to considering themselves wealthy, enlightened, and civilized shifts from inventing stuff and building airplanes to the supply of migrant labor, back-office services, and environmentally costly natural resources, we will thank the economists for their foresightedness. For they are already in a better place, and as it is written, in the long run, we are all dead.

Update History:
  • 3-Apr-2007, 2:32 p.m. EDT: Changed an ungrammatical “much” to “many”.

Casa Leon — Constanta, Romania Office Space

Office space. By far the nicest in Constanta. 208 square meters, brand new air conditioning and heating systems, original hardwood floors, three balconies with breathtaking views of the sea. Adjacent to Constanta’s largest business hotel (Hotel Ibis). 15 € / m2 / month. Contact swaldman@casaleon.ro or dial +40 723 602524.

Dollar Hegemony

There’s a funny irony in the whole “dollar hegemony” story one sometimes hears.

Going back to the closing of the gold window during Nixon administration, and even before that, the argument is that the West and Japan propped up the dollar as tribute to the emperor, in exchange for implied security guarantees. Foreigners were overpaying for “worthless paper”, and Charles De Gaulle may have hated that (espcially when Americans used the paper thus propped to buy up French firms), but they were spending to save a status quo threatened by Soviet domination. They were purchasing American military and economic strength, because they depended on a strong America. The United States wasn’t putting a gun to their heads to pay up. The Soviet Union was.

Now here’s China, the newest of US dollar purchasers. I’d argue that among other things, what China is purchasing with its overpayment for US securities is American military and economic weakness. China’s undervalued currency contributes to the “hollowing of smokestack America”, and a postindustrial United States, with disruptable global supply chains and limited capacity for vertically integrated domestic military production, is a less formidable rival than Rosie the Riveter’s America.

Please note that this is not an anti-China post. I don’t think that China’s currency policy is primarily driven by geopolitical rivalry, it is mostly about economics and development. I just think when the costs and benefits are summed, changes in the sectoral composition of America’s economy enter into the benefits column. Nor do I think this is condemnable on China’s part. In fact it is admirable. Managing geopolitical rivalries are part of what governments do. One ought not condemn the government that does its job well, but the one which for all its bluster manages its situation poorly.

This is cross-posted as a comment to a post of Brad Setser’s.

Fecundity Indexing: Childrearing and Public Pensions

This was originally a comment to a post on The Volokh Conspiracy. It’s resurrected here in response to a post by Shannon Love, and because I think this is really an important, if rather obvious, idea. [via Instapundit]

Public pension systems should offer tiered benefits explicitly contingent upon the number of children a couple has had, but with the extra benefits not kicking-in until at least 20 years after a child was born. Lots of variations on this theme are possible (extra benefits to parents of the educationally successful, etc.), though there is a slippery slope to overintrusive social engineering.

This idea has the advantage that it offers an incentive to reproduce that is likely to disproportionally affect those well prepared to raise a child. An impulsive teen whose failure to use birth control leads to a pregnancy is unlikely to be swayed in her choice of whether to have the child by an incentive 40 years distant. But a distant incentive may well affect the decision of successful couples, already socking away funds in their IRAs an 401-Ks, and whose decision to have very few children is related to conscientiousness in managing their finances.

Aside from addressing broad perverse incentives against childrearing, fecundity-indexed public pensions would help counter the growing insolvency of social insurance programs. Any private pension manager knows that it is important to match the assets and liabilities of her fund, in terms of both quantity and timing of payoff. A private pension manager buys bonds as long-term, liability matching assets. But with a social insurance programs, owing to their scales, financial assets may become meaningless. If a society fails to produce real assets sufficent to support the aged, any bonds the social insurance program has become claims on stale air. The real asset that social insurance programs rely on is productive young workers. A social insurance program that wants to match assets to its liabilities ought to be encouraging the reproduction of successful wealth creators.

Update History:
  • 11-Mar-2006, 12:15 p.m. EET: Reworked awkward first sentence of last paragraph.
  • 11-Mar-2006, 1:15 p.m. EET: Changed title from “Public Pensions and Childrearing: A Proposal”

New Beginnings

This is a placeholder, some words, forgettable, regrettable, as I’ve nothing to do or to say but to try to get the look right, the graphics up, all that jazz.

But it is also I suppose a new beginning, to something, a forgetting of escapades and failures past, a clean path to new misadventures. Let’s see where it goes.