Weekend Reads

Interesting things I've read throughout the week in Economic Development, the Environment, and World Affairs.

• The Timeless Design of National Geographic
• <>Asia Overtakes Europe, in Beer Terms
• America's Nuclear Future
• Best Decade Ever or America's Lost Decade
• Myanmar's Politics and Economy
• Is Eating Locally Environmentally Virtuous?
• What to Read on Russian Politics
• On Misreported Oil in the Gulf

Himalayan Disputes

A long standing border dispute has raged between the worlds two most populous countries, India and China, for the stretch of a many decades. The Economist uncovers each nations underlying motivation for dispute in a comprehensive reporting piece. Stemming from an invasion of the Peoples Liberation Army in 1962 of India its occupied areas, China soon after assume control of Tibet, and claimed to control much more. Many of these claims have inspired local protest and national political dissension.

With 40% of the worlds people and with a combined armed force enlistment of four million troops, India and China would be worrisome opponents. Though the historic relationship between the two has been dicey, there has been a recent improvement in interaction, thanks to some international diplomatic handiwork. Some see this dispute as a forthcoming battle for Asian supremacy, and others just a natural butting of heads. Either way, tensions will remain heightened between the two until compromise is reached.

The Pakistani Floods From Above, Before and After

The recent floods in Pakistan have devastated the the central Punjab and Sindh region, destroying countless of homes and causing massive food shortages for the three million inhabitants. The Map Room depicts two Landsat 5 images that give a birds eye view of the area before and after the flooding. Taken three days apart, the region is almost unrecognizable from above.

Thus far, aid has been slow to reach the area. Foreign reluctance can be attributed to the fragile position Pakistan currently occupies, however many believe now is the time to help regardless.

A North Korean Defectors Market

The North Korean Economy Watch examines the process of defecting from the DPRK. Since the 1950's approximately 20,000 individuals have been able to defect from the isolated republic-- when comparing this figure to East to West German defection rates of 689,000 between1961 and 1989, you can see the difficulty North Korean citizens have in escaping their government. Though this number is growing in the past 20 years, as larger defector communities have spawned both in South Korea and in China. It has become an economic market of defection:

Nowadays defection is, above all, business, controlled by defection specialists known as “brokers’. If they are paid a fee which currently fluctuates around $2000-$3000 per head but in some special cases might go higher, they can move a person from borderland areas to a third country where they would go to a South Korean consulate or embassy (usually, in Thailand or Mongolia). In third countries (but not in China) South Korean diplomats issue defectors with provisional travel documents and a ticket to Seoul.

The money which is necessary to pay for the broker’s service comes from different channels. In most cases, the sum is provided by a family member who has already reached Seoul. Acquiring this money independently is well beyond the means of the average North Korean refugee in China.

Upon arrival defectors go through a few weeks of debriefing by the South Korean intelligence agencies (admittedly, most of them don’t have much of interest to tell the South Korean authorities). This is followed by three months of readjustment training at Hanawon, a special reeducation facility for refugees. There the new arrivals are briefly lectured on the wonders of liberal democracy as well as provided with somewhat more useful knowledge about foodstuffs available in South Korean shops and the way to pay for a subway ticket in Seoul. Then they are provided with a modest accommodation (heavily subsidized by the government) and some stipend for the initial expenses (the sum varies, but the rough average is around $10,000 per person).

The good news is that foreign neighbors of North Korea are supporting those who manage or have the wherewithal to defect and defection is becoming an increasingly available option. However because of the high price, many who are in the most estranged position will never have an opportunity to escape the iron grip of the DPRK. As the Korea Times illustrates, even those who manage to make it out of North Korea still have a very tough life ahead of them.

2010 World Global Cities Index

Foreign Policy Magazine, The Chicago Council, and management consultant group A.T. Kearney have all collaborated to publish the an index of the worlds most 'global' cities. They make note that half of the worlds population now resides in an urban environment, and the rapidly expanding East is leading the growth as more and more Asians move from rural areas to the city.

The index seeks to measure and rank cities in global sway-- each urban metropolises influence on integration with global markets, culture, and innovation. The data that was assessed was wide ranging and very inclusive-- tallying everything from a city's business activity, human capital, and information exchange to its cultural experience and political engagement. From how many Fortune Global 500 company headquarters were in a city to the size of its capital markets and the flow of goods through its airports and ports, as well as factors such as the number of embassies, think tanks, political organizations, and museums. The list is ranked by an aggregate of all these factors.

New York, London, and Paris are among Western mainstays in the top 10, however as globalization does extend its reaches, we can expect the the huge megalopolises from the Eastern world to move quickly up the ladder.

Weekend Reads

Interesting things I've read throughout the week in economic development, the environment, and geography.

• The Future of the Euro
• When Sanctions Work
• Prosperity is the Friend of Wildlife?
• A Debate on China's model of development vs. the West
• Europe Gets it Right: On the continents economic comeback
• On Google and the Worlds Geopolitical Disputes
• The Role of the Presidents Economic Advisors
• How the World Looks From Hungary
  
• The Most Export Oriented City in the US? Wichita.
• White House Jobs are Exhausting

Where Does the Laffer Curve Bend?

Taxation is an issue that is creeping up on legislators as the American government's pocketbook has been bountifully doling out money to stave off collapse of the financial system. The Bush tax cuts are soon to expire and political leaders must deal with the largest budget deficit in national history. As debate will soon ensue about appropriate taxation levels, discussion regarding the Laffer curve is inevitable. Modeled after the work of Arthur Laffer, the curve seeks to find the correct equilibruim between maximized government revenue through taxation and all possible rate of taxation.

Looking at the chart above, we see that tax rates of zero percent produce no revenue, for obvious reasons. Rates of 100 percent should produce no revenue either, as no one would bother making the money that falls into that bracket knowing it would all be taken away. Thus, presumably, there is some rate in between the two that maximizes revenue (t*). Go above it and revenue would fall because people would avoid taxes or stop working; go below it and revenue would fall because less money would be taxed.

Dylan Matthews at the Washington Post asked several economists and political activists where they thought the curve should bend for government taxation. Harvard economics professor, Greg Mankiw, answers wisely:

"My guess is that that the short-run answer and the long-run answer are quite different. For example, if you raised the top rate from 35 to, say, 60 percent, you might raise revenue in the short run.

Over time, however, you would get lower economic growth, so the additional revenues would fall off and eventually decline below what they would have been at the lower rate.... I will pass on offering a specific number, as it would require more time and thought than I can offer just now, but I will opine that I think the long-run answer is actually more important for policy purposes than the short-run answer."

The truth is, nobody really knows and almost everyone interviewed readily admits this. Many of the economists pegged the the number around 60% and many politicians pegged it at 30%, thus the divide in mentality. Mankiw makes a good point however, while overtaxing citizens may produce optimal government revenue in the short-term, what effect does that have on long-term growth? Less money in the hands of consumers means less growth outside the government infrastructure, while subsidized development can be helpful-- it is not sustainable.

Post Conflict Recovery

Conflict and warfare cements an irremovable stain on the psych of a nation, curbs any type of development, and halts the education of a large proportion of the labor force. There is no continent on earth that is more entrenched with the problems of conflict and post-conflict recovery than Africa-- in the mid-1990's alone a third of sub-Saharan African countries had an active civil war, many lasting a decade or longer.

Yale professor, researcher, and blogger, Chris Blattman writes a summary of his work on post-conflict recovery in Africa for the Oxford Companion to the Economics of Africa. In his work, he seeks to understand what effect conflict has on post-conflict development, or what it takes from both a macro and micro perspective to revive growth. While questioning the differences between historical bounce back (i.e. Japan, Germany, Vietnam) and recovery of African states, Blattman examines parallels, inconstancies, and information gaps. Though the data collection is difficult:

As the twentieth century closed, conflict afflicted more and more
countries. By some accounts, conflict represented the central impediment to African development.

Second, as wars ended in the early years of the new century, governments and researchers could safely collect micro data. In a few especially valuable instances, enterprising researchers followed up representative samples of pre-war national household surveys to create a pre- and post-war panel.

Combined with data on the location and severity of war violence, these panels could be used to create differences-in-differences estimates of the micro-level impacts of war. In most war-torn nations, unfortunately, pre-war data were destroyed or (more often) never existed in the first place.

Thus another approach has been to collect cross-sectional data after war, using plausibly exogenous variation in violence to assess the lasting effects. Nearly all our micro-evidence on war comes from one of these two (largely reduced-form) empirical strategies. Structural modeling and estimation of war impacts remains unfortunately rare.

But, some conclusions have been made.

It is tempting to assume that war always and everywhere diminishes social and institutional strength. There are clear instances of war doing just this: polarizing ethnic tensions in Sudan or Nigeria, or prompting looting and capital flight in 1990s Sierra Leone and Liberia.

Nevertheless, war can sometimes have the opposite effect. At the macro-level, Latin America’s and (especially) Europe’s state stability and strength are commonly attributed to centuries of internal and external warfare. Political scientists have drawn modern parallels to African states like Uganda and Rwanda,whose institutions appear to have emerged stronger from conflict.

Some Africans nations have seen positive recovery and a further development post-conflict, however most institutions struggle for stability after conflict. The factors for this are numerous, just as any nation trying to rebuild after a war, African states lose physical capital (i.e. houses burned, resources plundered, etc), and more importantly human capital. The latter, which is driven by education and health (both physical and mental), is the catalyst for growth and development in almost every economy.

To understand and overcome development hurdles inspired by a cycle of conflict and despair, Blattman says we need improved theories of behavior that explain the emerging stylized facts, and so the further study of war could challenge (and improve) basic theories of economic and political behavior. This hopefully spurring on trends for more conflict data.

Where Americans are Spending More...

Since the recession began in the fourth quarter of 2007, Americans have changed their purchasing habits, and thus their lifestyles significantly. Mandel charts some of the aggregate personal consumption expenditure from the BEA below. The latest numbers tell us that spending is up 2.9% or $285 billion since Q4 in 2007, though not all sectors are fairing this as well as the total projects.

Increased spending on education, healthcare, and childcare are perceived as necessity expenditures. What is interesting is the 16.6% increase in telephone equipment and 14.4% increase in pet spending. Innovations in mobile devices, such as the iPhone, contribute heartily to a boost in consumer spending-- one of the few sectors to to see a consistent increase since the recession began. As Americans travel less (as we'll see below), they have more time to spend with pets and more money to spend on food and drink.

Americans are spending a little bit less on clothing and hotels; a lot less on foreign travel, video and audio equipment (think televisions), and furniture. The big drop, though, has come in motor vehicles and associated goods and services, like gasoline. The drop in fuel consumption can be contributed to both higher gas prices, and an environmental awareness-- as many cities have begun initiatives for sustainable transportation options, carpooling, and green transport tax incentives. To stave off hard times, many Americans are staying home, and spending their money locally.

Where Do the Diamonds Come From?

The Economist charts the worlds largest diamond producers. Since 2000, the governments of over 75 countries have signed up to the Kimberley Process, which certifies that diamonds produced for foreign markets have not helped to fund violence. The Process has its critics, who point out that diamonds from the huge Marange mine in Zimbabwe have just been cleared for sale, despite much evidence of government-sponsored violence there.