The polity that is Hawaii
From an MR reader:
The most Democratic legislature in the country passed two market-friendly bills this session.
1) HB2404 CD 1 represents the largest income tax cut in the State’s history (description and analysis here).
2) SB 3202 forces the counties to allow more construction of Accessory Dwelling Units on residential properties (news article here).
As somebody who works on HI state policy, looking at the supply-side constraints is a new way of thinking here. People are starting to recognize that the same old demand-side approaches are not working. I expect more laws like this in the coming years.
Hawaii has always been a small-c conservative state, in part due to the large Asian population. The Leg once again struck down a Cannabis legalization bill this year despite a big push from Progressives.
It will be interesting to see what happens next.
My excellent Conversation with Brian Winter
Here is the video, audio, and transcript. Here is the episode summary:
It’s not just the churrasco that made him fall in love with Brazil. Brian Winter has been studying and writing about Latin America for over 20 years. He’s been tracking the struggles and triumphs of the region as it’s dealt with decades of coups, violence, and shifting economics. His work offers a nuanced perspective on Latin America’s persistent challenges and remarkable resilience.
Together Brian and Tyler discuss the politics and economics of nearly every country from the equator down. They cover the future of migration into Brazil, what it’s doing right in agriculture, the cultural shift in race politics, crime in Rio and São Paulo, the effectiveness and future consequences of Bukele’s police state in El Salvador, the economic growth of Columbia despite continued violence, the prevalence of startups and psychoanalysis in Argentina, Uruguay’s reduction in poverty levels, the beautiful ugliness of Sao Paulo, where Brian will explore next, and more.
And here is one excerpt;
COWEN: What’s the economic geography of Brazil going to look like? All the wealth near Mato Grosso and the north just very, very poor? Or the north empties out? How’s that going to work? There used to be some modest degree of balance.
WINTER: That’s true. Most of the population in Brazil and the economic center, for sure, was in the southeast. That means, really, São Paulo state, which is about a quarter of Brazil’s population but roughly a third of its GDP. Rio as well, and the state of Minas Gerais, which has a name that tells its history. That means “general mines” in Portuguese. That’s the area where a lot of the gold came out of in the 18th and 19th centuries. That’s gone now, so it’s not as much of an economic pull.
You’re right, Tyler, though, that a lot of the real boom right now, the action, is in places like Mato Grosso, which is in the region of Brazil called the Central West. That’s soy country. I’m from Texas, and Mato Grosso is virtually indistinguishable from Texas these days. It’s hot. It’s flat. The crop, like I said, is soy. There’s cattle ranching as well.
Even the music — Brazil, as others have noted, has gone from being the country of bossa nova and the samba in the 1970s to being the country of sertanejo today. Sertanejo is a Brazilian cousin of country music with accordions, but it’s sung by people — men mostly — in jeans, big belt buckles, and cowboy hats. They’re importing that — not only that economic model but that lifestyle as well.
COWEN: What is the great Brazilian music of today? MPB is dead, right? So, what should someone listen to?
Recommended, interesting throughout.
Wednesday assorted links
Rent Control
Kholodilin offers a comprehensive review of the literature on rent control, some 206 papers, published and unpublished from 1967-2013. The results are summarized in the figure below where (-) indicates papers finding a negative effect, (0) no effect and (+) a positive effect. The top left figure, for example, shows, not surprisingly, that almost all papers find that rent controls does lower rents in the rent-controlled units.
Most papers that study the issue, however, find that rents increase in the uncontrolled units (middle row, right column.) In other words, “the imposition of rent control amplifies the shortage of housing. Therefore, the waiting queues become longer and would-be tenants must spend more time looking for a dwelling.”
Similarly, “nearly all studies indicate a negative effect of rent control on mobility” (top column, middle row).
Importantly, “the published studies are almost unanimous with respect to the impact of rent control on the quality of housing….[namely] that rent control leads to a deterioration in the quality of those dwellings subject to regulations.” (middle row, middle column).
The tourist culture that is Copenhagen
A new fee for Venice day trippers. A looming ban on vacation rentals in Barcelona. Restrictions on the sale of alcohol in Majorca. At a time when overwhelmed European destinations are slapping tourists with restrictions and fees, Copenhagen is trying a different approach: rewarding visitors who act responsibly.
Beginning July 15, tourists who demonstrate climate-friendly travel behavior by participating in the city’s green initiatives — including cycling, train travel and clean-up efforts — will be granted access to museum tours, kayak rentals, free meals and more.
Here is more from at the NYT.
30th anniversary of the Brazilian real
That is the topic of my latest Bloomberg column, here is one excerpt, starting with the reality of Brazilian hyperinflation in the early 1990s:
Fortunately, economists and other reformers came to the rescue and designed an effective plan for currency stabilization. Brazil first created a virtual currency, called the URV, and switched contracts and prices to the new accounting unit. Next, a new currency, the real, was introduced as equal in value to the URV and roughly equal to the US dollar. That created the prospect of a new and more stable currency.
The crucial part of the reforms was a credible plan for fiscal stability. Brazil wasn’t experiencing hyperinflation for no reason — rather, the freshly printed money was needed to make good on promised government expenditures. So to make the numbers add up without hyperinflation, the Brazilian government carried out some budget cuts, privatized some assets, transferred some functions to state and local governments, and made some constitutional and legislative pledges in the direction of a balanced budget…
Yet the ending to this story is by no means entirely happy. For several years Brazil’s economy has been growing below 1%, though it has recently climbed above 2%. The country has bountiful natural resources, plenty of human talent, some excellent companies and universities, and no natural geopolitical enemies. Still, its economic growth has been mediocre. Brazil ought to be able to achieve annual growth of 4% to 6%.
The causes of this disappointing growth are varied and subject to dispute. Possible culprits include corruption, excess protectionism, an economy too dependent on natural resources, an unreliable education system and, perhaps, a loss of economic dynamism. In the golden years of the late 1960s and early ‘70s, Brazil had very high growth rates, hitting 14% in 1973, so extremely good performance is possible.
Worth a ponder.
Alice Evans on female labor force participation and appreciation of female talent
Abhay Aneja and colleagues reveal that daughters of civil servants who were more exposed to female co-workers during WWI were significantly more likely to work. For each standard deviation increase in exposure to female co-workers, the gender gap in labor force participation for children narrowed by over 4 percentage points. This represents a 9% decline in the average labor force participation gap. Importantly, these effects were
- Driven by increased labor force participation of daughters (sons are unaffected)
- Strongest for children who, at the time of exposure, were teenagers
- Present even for children who moved away from their parents’ original city
Here is the full post.
Tuesday assorted links
1. Religious membership aided post-hurricane recovery growth.
2. Anna Gát Hope Axis podcast with Noah Smith.
3. Peter Gray on social media and depression.
4. Intellectual courage as the scarcest resource.
5. Richard Ngo on counterproductive activism.
U.S: elevators are much more expensive
Behind the dearth of elevators in the country that birthed the skyscraper are eye-watering costs. A basic four-stop elevator costs about $158,000 in New York City, compared with about $36,000 in Switzerland. A six-stop model will set you back more than three times as much in Pennsylvania as in Belgium. Maintenance, repairs, and inspections all cost more in America too.
The first thing to notice about our elevators is that, like many things in America, they are huge. New elevators outside the U.S. are typically sized to accommodate a person in a large wheelchair plus somebody standing behind them. American elevators have ballooned to about twice that size, driven by a drip-drip-drip of regulations, each motivated by a slightly different concern — first accessibility, then accommodation for ambulance stretchers, then even bigger stretchers.
Large Firms in the South Korean Growth Miracle
We quantify the contribution of the largest firms to South Korea’s economic performance over the period 1972-2011. Using firm-level historical data, we document a novel fact: firm concentration rose substantially during the growth miracle period. To understand whether rising concentration contributed positively or negatively to South Korean real income, we build a quantitative heterogeneous firm small open economy model. Our framework accommodates a variety of potential causes and consequences of changing firm concentration: productivity, distortions, selection into exporting, scale economies, and oligopolistic and oligopsonistic market power in domestic goods and labor markets. The model is implemented directly on the firm-level data and inverted to recover the drivers of concentration. We find that most of the differential performance of the top firms is attributable to higher productivity growth rather than differential distortions. Exceptional performance of the top 3 firms within each sector relative to the average firms contributed 15% to the 2011 real GDP and 4% to the net present value of welfare over the period 1972-2011. Thus, the largest Korean firms were superstars rather than supervillains.
That is from a new NBER working paper by Jaedo Choi, Andrei A. Levchenko, Dimitrije Ruzic, and Younghun Shim.
Monday assorted links
New Ross Douthat book
Believe: Why Everyone Should be Religious, pre-order here. Self-recommending, some would say God recommends it too. Here is the chain of links to my earlier exchange with Ross on whether one should believe in God.
Agricultural Productivity in Africa
If you look at total output, Peter Coy notes that sub-Saharan Africa looks quite impressive with gains in total output exceeding that in the rest of the world.
But almost all of this has come from using more inputs, especially land. If you look at output per unit of input, i.e. total factor productivity (TFP) then sub-Saharan Africa not only trails the rest of the world, it’s falling behind.
The numbers are correct based on data from the USDA but digging deeper, I noted that the two worst performing countries are Djibouti and Botswana–two small countries where agriculture is less than 5% of GDP and where climate and land mean that agriculture has no hope of ever being a great success. Moreover, Djibouti is growing rapidly and Botswana is a middle-income country with a booming economy. I suspect that what is going on here is that a growing economy is pulling the best (unmeasured) people and resources out of agriculture which leads what was already a small sector to become less productive on paper, albeit at no great loss to the economy.
In contrast, the countries where Ag TFP is rising the most are Zimbabwe and Senegal where agriculture is a much larger share of GDP and employment (Zimbabwe ~11-14% of GDP, 70% of employment and Senegal 16% of GDP, 30% of employment). So the good news is that agricultural productivity is growing in places where it is important.
Bottom line is that agricultural productivity in Africa is low. I see the primary cause as being small firms which means there are few opportunities for economies of scale, mechanization and R&D (see Suri et al. (2024) for a longer discussion.). Climate change is a threat and developing climate-resistant crops, especially for Africa where heat stress will become increasingly important, has high potential returns.
Overall, however, my conclusion is that although agricultural productivity in Africa is low and there are threats on the horizon the situation is getting modestly better rather than dramatically worse.
Sierra Leone update
An addiction crisis is gripping Sierra Leone, one of the world’s poorest nations, driven by a surge in use of “kush”, a toxic blend of psychoactive substances. As the West African nation struggles to boost its economy, thousands of unemployed young adults have turned to the potent alternative to marijuana to fill their days.
The kush crisis is part of a growing trend of substance abuse across Africa, particularly among the continent’s youth.
“People are addicted to escape,” said Abass Wurie, a biomedical scientist in Freetown who is studying the effects of the drug on the heart and kidney.
Here is more from Aanu Adeoye at the FT. Is this a new trend for very poor countries, as the prices of escapist, addictive drugs fall all the more?
Incentives matter, for childbirth too
That is the topic of my latest Bloomberg column, here is one bit:
There is in fact a pronounced “baby bump” in December. The numbers show that induced deliveries and scheduled Caesarian section deliveries are higher than average toward the very end of the year.
Why? In the US, there are significant tax advantages to having a child. If you are a single parent with an adjusted gross income below $112,500, an extra child brings you a $3,600 child tax credit per year.
So — speaking strictly about the tax implications, of course — a New Year’s Eve baby is better than New Year’s baby: You can claim that little bundle of joy as a dependent for the entire year, even though they were only there for a day of it. Yet further benefits could come from state-level earned income tax credit and child tax credit programs.
You might argue that the parents, not the kids, gain the most from these tax benefits. You might also ask if there are some costs to these newly born children. In fact, the study shows that these children have lower birthweights. Further research shows that the accelerated births had noticeable impacts on the children, again finding lower birthweights.
The good news, however, is that those same kids have accelerated weight gains over the course of subsequent examinations. The further good news is that those children reach early development milestones at a faster pace than average. That may reflect the extra income the parents have, since higher income and other positive parental features do predict better developmental outcomes for the kids.
Don’t wait until April!