Why should we debate the contributions of particular dead economists?

Pier Luigi Porta reports that there is currently a lively debate on the legacy of Piero Sraffa's research and its contribution to modern economics, all this in conjunction with the opening of Sraffa's archives twenty years ago. Sraffa's major work was published half a century ago, and it influence economic thinking back then. But Economics moved on, we found new techniques, models and evidence. What is the purpose of going back to outdated theories? I realize that sometimes you need to take a few steps back when you realize you got into a dead-end, but that does not mean one should worship old science and look for its traces everywhere.

There are, however, circumstances where the history of economic thought is useful. For example, there certainly are some fads in economic research and it would be useful to learn how they emerge. Fads are a waste of time and should be prevented. It can also be useful to understand how some people can lead economic thinking onto a particular path, especially when there are some self-interests attached (and the path turns out to be a dead-end). But this is more about group psychology than hero worship.

Maybe someone can help me understanding why we need this debate about the importance of Sraffa in current economic thinking. I do not see it.

Crackpot Conspiracies: Bilderberg Group Circa 2013

I think it's Hollywood's fault: In any number of action/spy/suspense/thriller movies, there is a good chance that they will depict some kind of shadowy secret organization that really runs the world--usually to fulfil nefarious ends. (You can't sell movies if they were a bunch of do-gooders, can you?) One version of this storyline is that little-known but powerful masterminds get together to plot the global future to suit their purposes. Another version is that well-known public figures in politics and business are ultimately networked to an organization that decides the fate of the world that put them in places of power.

During the years of Bush the Younger, the evil organization du jour was of course the Carlyle Group. With the ebbing of American military adventurism, however, it has receded from the public eye (for now). Bereft of that military-industrial complex, conspiracy theorists have been left with more traditional bogeymen to ponder when their minds naturally wander into evil machinations being hatched.

Given that we now have a Democratic presidency, it's about time the conspiracy theorists revived the Carter-era Trilateral Commission [TLC] whose American component of a North America-Europe-Asia triad was composed mostly of Democratic instead of GOP operatives. Given Obama's seeming penchant for mounting drone attacks, engineering computer viruses, and invading Internet privacy, it's about time someone asked on whose behalf be did all of those things. I was rather amused by the Straight Dope's take on the subject matter:

The TLC's first executive director was Zbigniew Brzezinski, and such well-known figures as Walter Mondale, Caspar Weinberger, and Paul Volcker have been members. Also on the rolls at one time, mainly because the commission needed some representation from the South, was the then-governor of Georgia, Jimmy Carter. The prospect of spending hours cooped up with the likes of Walter Mondale would probably send most of us screaming for the exits. But Carter was an impressionable sort who found both the commission's meetings and its members deeply fascinating. He got chummy with many of the latter and appointed more than a dozen to posts in his administration, including Cyrus Vance, Michael Blumenthal, and of course the redoubtable Brzezinski.

This short guided tour of shadowy organizations thus brings us to the eponymous Bilderberg Group. Just as the Carlyle Group is named after the hotel its members prefer to meet at, this one is named after the venue of their first gathering. In terms of membership, however, Bilderberg resembles an older Trilateral Commission. Whereas the TLC is an North American-European-Asian gathering, a more apt name for Bilderberg would be the "Bilateral Commission" since its was intended to be an American-European gathering. But hey, it bears mentioning that the Bilderberg Group was formed in 1954--the world's powers were rather more Western then.

No matter, though. Recently, the Bilderberg Group meeting in London became an occasion for the crackpot conspracists to have a jamboree. Yes, they were partying like it was 1954 as they pondered what sort of dark machinations were being plotted in sequestered grounds...

More than 100 of the world's most powerful people are at the former manor house near London for a secretive annual gathering that has attained legendary status in the eyes of anti-capitalist protesters and conspiracy theorists. The guest list for the Bilderberg meeting includes Google executive chairman Eric Schmidt, Amazon CEO Jeff Bezos, International Monetary Fund chief Christine Lagarde and former U.S. Secretary of State Henry Kissinger. British Prime Minister David Cameron is due to drop by Friday.

 

The Bilderberg Group was set up in 1954 to support military and economic co-operation between Europe and North America during the Cold War. Named for the site of its first meeting — the Bilderberg Hotel in Oosterbeek, Holland — the forum for prominent politicians, thinkers and business leaders has been held annually at a series of secluded venues in Europe and North America.

I honestly doubt whether the Bilderberg Group is anything but a slightly less transparent World Economic Forum-style gathering where self-important VIPs are willing to spend top dollar to feel ever-so-important hobnobbing with other poo-bahs. While protesters at WEF events are of course ubiquitous, I believe that conspiracy theorists are less prone to ascribing dark, romantic connotations to what is ostensibly an "economic" meeting that videotapes most of its events. Let's just say that the reality of a bunch of guys talking about non-tariff barriers and other dry topics doesn't quite capture the fancy of the conspiracy set used to a steady diet of faceless characters known to viewers only by the plumes of smoke emanating from their tobacco pipes. Lemme put it this way: Do you think a runt like Paul Krugman could be cast in a Tom Clancy film adaptation? I didn't think so.

And so the "mystique" continues. Actually, the delusion is mutually reinforcing: On one hand, the erstwhile secret society members delude themselves into thinking they actually have a hand in shaping the global agenda while gathering with fellow Masters of the Universe. On the other hand, the conspiracy nutters actually buy into the idea that that's what really happens at these gatherings.

In the end, that's probably all the truth out there to be found.

Why is financial education unpopular?

People make dumb financial choices often because they miss some of the most elementary notions of finance, and they even realize that. Yet, it is extremely difficult to get them to sit down and learn something about elementary finance? Why? Is it because their is a stigma? Because it is horribly boring? Because they have better things to do? Because they do not see the point of it?

Miriam Bruhn, Gabriel Lara Ibarra and David McKenzie tried to coax people into a financial education class in Mexico and found it very difficult. They tried with substantial monetary incentives and still achieved little. Even more disheartening, those they managed to get through the door retained very little: they saved more, but only for a little time, and their borrowing effort was unaffected. Sad.

I wonder whether there is comparable data for developed economies that were recently rattled by the financial crisis. People must have realized that financial education matters. Did they improve their financial literacy? Give me some hope.

Defending the One Percent

Click here to read my new essay "Defending the One Percent," which is forthcoming in the Journal of Economic Perspectives.

How much do firms want to stay informal?

In developing economies, a substantial fraction of the economy stays informal, that is, unregulated, untaxed and unprotected. Why so? One could argue that they want to avoid red tape and corruption. Or they may find the the benefits of formality, like better access to credit or payment systems, courts and insurance, do not outweigh the costs being visible to the state, like workplace regulation, taxes and competition with untaxed businesses.

Suresh de Mel, David McKenzie and Christopher Woodruff perform an experiment in Sri Lanka wherein firms are offered various incentives to formalize, from simple administrative help to lump-sum payments corresponding to two months of profits. Helping with the red tape does not change much, however payments got up to half of the firms to formalize. The threshold to formalization seems rather low in monetary terms, and may also include some path-dependence. From post-experiment interviews with participating firms, the authors learned that the formal firms not change their profits much, but owners felt more legitimacy and they report more confidence in the state. Thus, they are unlikely to return to informality. And if this were to happen at a greater scale, I surmise this would have importance scale effects in formalization, as formal businesses would fear less informal competition. Formalizing an economy may thus be relatively cheap to achieve.

Did US Ask Philippines to Kill KAT.ph?

News site Torrent Freak, "[t]he place where breaking news, BitTorrent and copyright collide" believes so, at least. Coming from the Philippines, I've always wondered whether to be proud or ashamed that the world's top torrent sites have had .ph top-level domains [TLDs] at one time or another. I recall the now-defunct private tracker site Demonoid being "located" in the Philippines. Sometime later, the world's second largest torrent site, Kick Ass Torrents also "moved" to the Philippines [KAT.ph].

As someone with--ahem--professional interest in the operation of torrent sites as working examples of the underground economy, the recent disappearance of KAT.ph intrigued me. Despite the Philippine passage of the Data Privacy Act in the middle of last year, it was curious to me how KAT.ph continued to operate with impunity after adopting its Philippine domain in April of 2011. But lo and behold, Philippine music industry figures supposedly argued that they were being hurt by KAT.ph's nefarious activities and the government was compelled to shut down the URL only yesterday...

Yesterday the torrent site ran into trouble with its KAT.ph domain, and there were signs suggesting the domain was no longer in control of the original owners. Over the past few hours more details have emerged, and the Government of the Philippines has now confirmed that the domain name has been seized on copyright grounds.

The seizure is the result of a complaint filed by the Philippine Association of the Recording Industry and several individual music labels. The complaint stated that KickassTorrents was causing “irreparable damages” to the music industry, and a local court agreed to suspend the site’s domain. “The complaint alleges that the registrant of KAT.ph is violating intellectual property rights by making copyrighted music available for download to its users,” the dotPH registry informed TorrentFreak. 

To be clear, the Philippine industry complaint was filed in December 2011, but Philippine authorities were only able to act after a court order was issued to do so...

Early this week the Philippine Intellectual Property Office issued a temporary restraining Order directing the dotPH registry to suspend the KAT.ph domain for 72 hours. The order, signed by the IPO Bureau of Legal Affairs, will become final if the domain owners don’t appeal. According to dotPH, the company that maintains the database of PH domain names, the music industry first complained about KickassTorrents in 2011.

However, the company said at the time that it would only take action following a court order. “dotPH was initially contacted by the complainants’ lawyers in December of 2011 with a demand to take down the domain, and dotPH agreed to cooperate if provided with an order from a court or appropriate authority,” TorrentFreak was informed. “dotPH received the restraining order earlier this week and subsequently suspended kat.ph in compliance with IPO’s directive,” the registry adds. 

As with most of these things where "Internet," "intellectual property" and "enforcement" are mentioned, there is natural suspicion that the United States is involved in pressuring the Philippines via inclusion in the US Trade Representative's watch list. To be clear, the Philippines has long been on this list, but more for the piracy of fake DVDs as opposed to "hosting" a rogue site (KAT.ph). There were earlier hopes that the Philippines would be struck off the 2013 edition after cracking down on physical distribution of pirated media, but officials were disappointed when it was not. See here:

The government expressed surprise and disappointment over the decision of the United States Trade Representative (USTR) to retain the Philippines on its watch list of countries that violate intellectual-property rights (IPR) due to concerns over Internet piracy.

[Intellectual Property Office of the Philippines (IPOPHIL) Director General] Blancaflor noted the “changing requirements” of the USTR for removal from the watch list of IPR violators. “The USTR has no intention of removing the Philippines from the watch list. Every year the requirements change and vary. How can we be removed if the requirements keep changing?” he asked. “Two years ago it was massive counterfeits. We addressed that with record-breaking volume of seizures. We were not removed then. Last year the US complained that we did not pass the Internet treaty law. We passed it on March 22,” Blancaflor said.

Anyway, back to TorrentFreak on US pressure for Philippine action against KAT.ph:

While the case is presented as a local action aimed at preventing piracy of original Filipino music, it wouldn’t be much of a surprise if U.S. forces have also been applying pressure. In its latest Special 301 Report the U.S. Government listed the Philippines on its copyright “watch list,” demanding further action against so-called rogue sites.

“The United States looks to the Philippines to take important steps to address piracy over the Internet, in particular with respect to notorious online markets,” the Office of the United States Trade Representative wrote in its report.

I suspect the Philippine authorities are still keen on having the country removed from the watch list given the efforts it has undertaken in passing the aforementioned law and continually raiding vendors of pirated DVDs. With legal backing through a court ruling to seize KAT.ph, its fate was pretty much sealed given the changing nature of American IP requests..

In the broader scheme of things, however, does it really matter? KAT is now operating with another TLD, business as usual. So, the US may have successfully bullied Philippine authorities, but the piracy goes on unabated as most users will eventually find the new site. And if that's taken down eventually, well, the game just moves on and on across even more TLDs. Montenegro, perhaps?

Will France's "Culture" Concerns Delay US-EU FTA?

I have already dubbed the proposed " Transatlantic Trade and Investment Partnership" AKA the US-EU FTA a non-event on the grounds that (a) the counterparties are slow-growing economies (b) which already have few barriers on each other's products [around 2% tariff rates on average]. Also, (c) they face several obstacles to further liberalization on products with tariff peaks that will at best result in a watered-down agreement --especially in agriculture. While this FTA bores me already, I have nonetheless found France's intransigence somewhat intriguing given the run-ins they've had with the United States over various issues. Remember those "freedom fries"? I surely do.

A few weeks ago I discussed how the French were likely to raise a stink about "cultural imperialism" insofar as their "superior" culture was to be overwhelmed by Hollywood's brand of lowbrow tinselled trash. Call it the cultural special safeguard mechanism. While agreeing that much US video entertainment is garbage, it is not my place or that of anyone else's to question the questionable taste of French consumers. That is, if they prefer Hollywood fare to France's own productions, well, tough. Obstinate French officials are pressing this point, though. They will surely ask for exceptions in agriculture--just you wait since they will come just as night follows day--but possibly delaying the start of FTA negotiations over exceptions to entertainment is exceptional:

France is "extremely determined" to keep movies and digital media out of free trade talks between the EU and the United States, a government minister said on Wednesday, a stance that could block the start of negotiations. Two days before EU countries are supposed to give the go-ahead for negotiations, the EU is struggling to find a compromise that satisfies France's "cultural" concerns without exempting the audiovisual sector from the wide-reaching talks.

"France defends and will defend the cultural exception to the end - that's a red line," French Culture Minister Aurelie Filippetti told Reuters TV, referring to current EU rules that allow governments to preserve "cultural diversity" by setting subsidies and quotas that might otherwise be considered contrary to free trade. Asked if Paris would go as far as blocking the opening of talks on what would be the world's largest free-trade agreement, she replied: "France is extremely determined."

The first round of talks has been tentatively scheduled for July, but both sides must first agree the scope of the negotiations, something EU trade ministers should finalize at talks on Friday.

Later today the eurocrats will discuss the coverage of FTA negotiations. Expect more drama from the French. Mas oui!

UPDATE 1: The French will not block the start of the negotiations after winning an exemption on media products after hours and hours of negotiations (albeit with some qualifiers):

Paris had refused to join the 26 other EU governments unless television, movies and developing online media were left out.

The final mandate given to EU trade chief Karel De Gucht, who will lead negotiations, does not include the audiovisual sector. However, it does give the Commission the right to ask member states for a broader mandate at a later stage. "I can live with this," De Gucht told a news conference.

French Trade Minister Nicole Bricq said it was "written clearly in black and white" that culture was excluded.

UPDATE 2: A number of top European directors are elated about "victory" in a culture trade war.