Book Review: "23 things they don't teach you about capitalism", by Ha-Joon Chang.

Argentina recently imposed import-license requirements for mobile-phones. Its motive is to replace imports with local production, and hence create jobs. The trade policy, coupled with tax incentives, led Research in Motion, the makers of BlackBerrys, to begin assembling phones in Tierra del Fuego. Similarly, Brazil is trying to replace imports by local manufacturing using tax breaks. As a result, Foxconn is setting up a Brazilian plant to assemble iPads.

Both these examples, taken from this week’s Economist, would make Ha-Joon Chang smile. Not only is he a great believer in the role of manufacturing in prosperity (see here how he crushed Bhagwati in an onlinedebate), he also believes such industrial policy is exactly the right tool to promote development. His latest book, “23 things they don’t tell you about capitalism”, makes the point once again, repeating his favorite stories from previous books (see my previous review here).

The author is quite talented at convincing people that capitalism is often a bad idea. His approach consists in making extremes out of free-market ideas, and giving a few examples to prove they’re not true. Arguing by examples does not usually convince economists, who prefer regressions. But the latter should pay attention rather than dismiss it so easily.

He is most interesting when arguing that education does not matter much for growth. A university education does not make you more productive. What matters more is the capacity of organization of leaders, whether in business or government. He’s also fun when he gives example of how economists don’t do good policy. The rest is mostly summarized as “free-market policies don’t always work, but quite to the contrary”.

All in all, this is another great book by Ha-Joon Chang, but nothing new. As for Brazil and Argentina, let’s see what happens to their industries in the years to come.

The Chinese in Zambia

BBC NEWS:

"Lusaka has recently become the first African city to offer Chinese currency banking services. The city's Bank of China branch now handles counter deposits and withdrawals in yuan.
In the last 10 years... Sino-Zambian trade has really taken off, growing from just $100 million in 2000 to $2.8 billion last year... Beyond mining and manufacturing, there is also growing Chinese presence within Zambia's retail sector, from imported textiles and electronics, to chickens farmed locally and sold in city markets. The country is also home to two of China's six African Special Economic Zones."

Zambia is having elections today...

to blog or not to blog?

DAVID MCKENZIE and BERK ÖZLER, form the World Bank's relatively new blog "Development Impact" are blogging a series of analyzes about the impact of blogging. The first one about the impact on citations, the second one impact on recognition and effective policies.... so far, their methodology is not too credible, and similar to many impact evaluations they have criticized, full of endogeneity and selection bias... I hope they will improve in the next reports of the series.

Obama is paying for Bush's irresponsible fiscal policy

While Obama is trying hard to increase the debt ceiling, Republicans are doing everything to make sure the US defaults for the third time in history (previous defaults were in 1790 and 1933), claiming the president is seeking a "blank cheque". But this whole mess is not due to Democrats' taste for redistribution, it's due to Bush's tax cuts and two unwinnable wars. The deficit Bush created is estimated at $5.07 trillion while Obama's stimulus spending is at $1.44 trillion. Clearly, Bush created the debt problem and now republicans are trying to make things even worse. Dumb people.

ht: Chart Porn

Does size matter?

OK this is all over the web already but still I thought I'd share this beautifully-written new development paper with everybody. Here's an extract from the abstract:

This paper explores the link between economic development and penile length... The size of male organ is found to have an inverse U-shaped relationship with the level of GDP in 1985. It can alone explain over 15% of the variation in GDP... It is also found to be more important determinant of GDP growth than country's political regime type.

Economics at its best? Apparently, the relationship falls apart when one controls for average population height.

ht: Serge

Rigotnomics Fellow Sergio Sola cited in The Economist

This week's Economics Focus cites research from Rigotnomics Fellow Sergio Sola. Here's an extract:

Mr Obama is not alone in arguing that austerity can boost growth: Britain’s deficit-slashing coalition government and the European Central Bank (ECB) also make the case. A decline in interest rates due to a lower probability of default should support investment and asset prices. Expectations of lower future taxes and higher lifetime earnings may encourage investment and spending. A new ECB working paper argues that “a fiscal contraction may turn out to be expansionary if the expectation channel becomes sufficiently strong.” In practice, however, it rarely works out that way.

The ECB working paper can be downloaded here. Al top.

How Iranians get their puppies

The Iranian government always has good ideas. For example, in April, it passed a bill to criminalize dog ownership, declaring the phenomenon a sign of "vulgar Western values." (Dogs are considered "haram," or unclean, in Islam). But people want their puppies, so guess what happens next.

Dog-selling websites like Rashtpet and Petpars confirm they import dogs by paying travelling Iranians to act as illicit couriers and claim the puppies are their own. While importing dogs for sale is illegal, passengers are allowed to bring personal pets in on commercial flights. The flight from Ukraine to Tehran has been nicknamed "the puppy flight" because many of its passengers, mostly university students, are carrying puppies for sale. When airport authorities caught on last year, they increased the tax on importing pets from $50 to $800, according to sellers. Some dog vendors diverted their operation so dogs are transported from Ukraine to Armenia and Turkey and from there smuggled in the cargo section of tour buses and trucks returning to Iran. "We have a large and very capable network expanding from Iran to Europe and beyond to help unite Iranians with dogs," says the 30-year-old owner of Petpars…

Source: Wall Street Journal. Ht: Tyler Cowen

Book review: The Cartoon Introduction to Economics, Volume 1: Microeconomics

It's always a good idea to refresh your memory with the basics of economics once in a while. There's no better way to do that than with Yoram Bauman's new book, "The Cartoon Introduction to Economics, Volume 1: Microeconomics". I just got it as a birthday present and I went through the whole book in one go. It's entertaining, easy to follow, and super clear. It's also a great way to find inspiration when teaching game theory, auctions, and marginla analysis to undergrads. A great buy, no doubt about it. I'm gonna get the macroeconomics volume for sure when it comes out next year.

easyjet luggage fees

Almost 4 years ago I blogged about easyjet's boarding problem. Yesterday I had another blog-worthy easyjet experience coming back from Stockholm. The plane was so full with onboard suitcases that we had to check-in ours once in the plane. How can this happen? Well, easyjet charges you about 30CHF for checked-in luggage. Add that to the fact that waiting for luggage upon arrival is time-wasting and you have a perfect recipe for overpacked cabins. How to solve this problem? Easy, just make it free to check-in luggage and charge 10CHF for onboard bags.  For easyjet, the money made will cover for the costs of handling checked-in luggage. For us, checking-in big bags full of beer bottles will be free and cabins won't be overpacked anymore.