On writing op-eds

writing ▪

A set of good advice on what not to do when writing op-eds by Issues in Science and Technology chief editor, Kevin Finneran, amusingly summarized (and "illustrated") by ASU professor Merlyna Lim.

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Poverty trap in the US

policy ▪ poverty ▪

When one hears about poverty trap, the image that comes up usually involve developing countries. It isn't necessarily so. Here is Jeffrey Liebman, Harvard professor (and an adviser to presidential candidate, Barack Obama):

Despite the EITC and child credit, the poverty trap is still very much a reality in the U.S. A woman called me out of the blue last week and told me her self-sufficiency counselor had suggested she get in touch with me. She had moved from a $25,000 a year job to a $35,000 a year job, and suddenly she couldn’t make ends meet any more. I told her I didn’t know what I could do for her, but agreed to meet with her. She showed me all her pay stubs etc. She really did come out behind by several hundred dollars a month. She lost free health insurance and instead had to pay $230 a month for her employer-provided health insurance. Her rent associated with her section 8 voucher went up by 30% of the income gain (which is the rule). She lost the ($280 a month) subsidized child care voucher she had for after-school care for her child. She lost around $1600 a year of the EITC. She paid payroll tax on the additional income. Finally, the new job was in Boston, and she lived in a suburb. So now she has $300 a month of additional gas and parking charges. She asked me if she should go back to earning $25,000. I told her that she should first try to find a $35k job closer to home. Also, she apparently can’t fully reverse her decision to take the higher paying job because she can’t get the child care voucher back (the waiting list is several years long she thinks). She is really stuck. She tried taking an additional weekend job, but the combination of losing 30 percent in increased rent and paying for someone to take care of her child meant it didn’t help much either.

The question is what is the policy solution here...

You can read the rest at Jeff Frankel's blog here. It's not easy to design a policy support for the poor -- a means-tested program such as EITC that cuts off benefit at a certain income may create an adverse incentive at the margin for those whose income is around the cut-off point.

HT: Greg Mankiw.

Slightly off topic, I think it's about time Indonesian politicians start to think in a systematic way about policy support for the poor that minimizes the incentive distortions to the broader economy. I think this can be done -- for all its faults, especially as a program designed and implemented in such a short time, the cash transfer program was relatively successful in achieving such an objective. It's high time that we think of such programs, especially given the expected global food price hikes.

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Indonesians want more globalization

indonesia ▪ policy ▪

...according to this survey. Asked the following:

Overall do you think economic globalization, including trade and investment, is growing much too quickly, a bit too quickly, a bit too slowly, or much too slowly?

more than half of the representative respondents in Indonesia think that the current growth of globalization is too slow (39% thinks it's a bit too slowly, another 15% much too slowly). Only 40% think that the current pace of globalization is either a bit or much too fast. Surprised?



HT: Dani Rodrik

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stickK's up!

behaviour ▪ economics ▪

I have just been told that now you can really put a contract out on yourself. stickK.com, which aims to help you live up to your promises to yourself, is now up, running, and receiving contracts.

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Islam in Indonesia

indonesia ▪ religion ▪

The Economist writes this sobering piece on Islam in Indonesia:

In Indonesia, unlike most Muslim countries, the ideological struggle between various forms of Islam is being fought largely by democratic means. The violent and the intolerant are still at the margins and, while the country's steady progress persists, look likely to stay there.

Saiful Mujani, an Indonesian political scientist, could have told you that years ago. From his article (co-authored with Bill Liddle) in the New York Times almost half a decade ago, a year after the Bali bombing:

Surely, with attacks like [the Bali and Marriott Hotel bombing], politically militant Islam is on the rise in Indonesia?

Surprisingly, the answer is no. Survey and election results show that the number of Islamists, Muslims who want an Islamic state, is no more than 15 percent of the total Indonesian Muslim population of 200 million. The remaining 85 percent are moderately or strongly opposed to an Islamic state. Most important and least recognized in the current climate of fear in the non-Muslim world, Islamism as a political ideology appears to be losing ground in Indonesia, not gaining it.

[I was annoyed he didn't get interviewed for the article, but anyway]. Also worth reading, his award-winning dissertation on Indonesian muslims and democratic values. Using Indonesian data and some simple statistics, he provided empirical evidence against hypotheses (most famously made by Samuel Huntington) suggesting that Islam must necessarily be incompatible with democracy. Indonesia seems to have proven them otherwise.

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Boudreaux and Cowen on microcredit

economics ▪ microfinance ▪ policy ▪

Karol Boudreaux and Tyler Cowen ask the following on microcredit:

But can microcredit achieve the massive changes its proponents claim? Is it the solution to poverty in the developing world, or something more ­modest—­a way to empower the poor, particularly poor women, with some control over their lives and their ­assets?

and conclude that, more often, it's the latter:

Microcredit is making people’s lives better around the world. But for the most part, it is not pulling them out of poverty. It is hard to find entrepreneurs who start with these tiny loans and graduate to run commercial empires...[Microcredit] is important even when it does nothing more than stave off ­decline.

With microcredit, life becomes more bearable and easier to manage. The improvements may not show up as an explicit return on investment, but the benefits are very real. If a poor family is able to keep a child in school, send someone to a clinic, or build up more secure savings, its ­well-­being improves, if only marginally.

I agree: A lot of the benefits of microcredit programs come from the "consumption support" function that allows poorest households to smooth consumption (as well as human-capital investment in their children's education) during bad times. Unfortunately, many still don't appreciate this function of microcredits. One World Bank Jakarta official once told me how he could not convince a forum of local NGOs and donor agencies not to require microloans be used for "productive activities" in a microcredit program they were considering. An instance of policymaker paternalism, perhaps?

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RIP: M. Sadli

economists ▪ indonesia ▪

Last night, M. Sadli, an important Indonesian policy economist dubbed one of the "four men that changed Indonesia" by ANU's Hal Hill passed away. Here is Hill on Sadli's economic commentary (from this article from FEER):

Three key elements have always been present in these commentaries. First, the importance of sound "first principles" in economic policy, whether it be macroeconomics, trade and industry policy or social issues. The second has been keeping a watchful eye on the public-policy debates, the complex, fluid political economy equations, and how they are likely to impinge on outcomes. And third, in debates which have often been parochial and sometimes conspiratorial, Mr. Sadli has always been quick to remind his readership of the international dimensions, ranging from the lessons of other countries in transition from crises to the latest writings in development economics. Mr. Sadli has also straddled business and academe with ease, more effectively than anybody else in Indonesia. As the architect of Indonesia's liberal foreign-investment policies in 1967 and from his tenure as minister for mining in the 1970s, he retains close connections with the international business community, and has played a major role in educating them about Indonesian political economy.

Pak Sadli will be sorely missed.

HT: Arianto Patunru.

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To wake you up in the morning

behaviour ▪ economics ▪

More behavioural economics at work: Along the line of this post, now we have this alarm clock:

Connects via WiFi to your online bank account, and donates YOUR real money to an organization you HATE when you decide to snooze!

HT: Tyler Cowen. This thing seems to be a prank, but it's a cool application of trying to influence behaviours at the margin.

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Does poverty kill?

economics ▪ poverty ▪

A recent NBER paper by Abhijit Banerjee and Esther Duflo:

This paper uses household survey data form several developing countries to investigate whether the poor (defined as those living under $1 or $2 dollars a day at PPP) and the non poor have different mortality rates in old age. We construct a proxy measure of longevity, which is the probability that an adult's mother and father are alive. The non-poor's mothers are more likely to be alive than the poor's mothers. Using panel data set for Indonesia and Vietnam, we also find that older adults are significantly more likely to have died five years later if they are poor. The direction of causality is unclear: the poor may be poor because they are sick (and thus more likely to die), or they could die because they are poor.

For Indonesia, they find that:

[In] all age groups, there is very little difference in death rates between the poor and the extremely poor, but the non-poor are less likely to die than the poor and the extremely poor. This is true both five years out and ten years out, and in both rural and urban areas. In rural areas, depending on the age group and whether we look at five to ten years out, the extremely poor are 1.4 to 5 times more likely to die than those who live between $6 and $10 dollars a day. (p. 14)

They find a similar pattern in the Vietnam data. Though they have not established the direction of causality between poverty and longevity, "[on] balance, we are tempted to interpret the evidence accumulated in this paper as revealing, at least in part, that poverty does kill."

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One question, many answers

edge ▪

Edge's 2008 question:

What have you changed your mind about? Why?

followed by a lot of interesting answers from interesting minds. Naturally, the question reminds me of J.M. Keynes's famous retort: "When the facts change, I change my mind. What do you do, sir?"

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