Author Archives: jdingel

Against the MDGs for Africa

Alan Beattie has an FT column summarizing what has been said before: the MDGs are bad benchmarks that won’t be met.

– Targets set in 2000 based on a 1990 baseline punish poor performance prior their establishment.
– The expected rate of progress defies previous development experience.
– They facilitate inappropriate cross-country comparisons.
– They are political measures, not economic or development assessments.

An alternative trigger formula for special safeguards for agriculture

So in the midst of the financial crisis hullabaloo (Vox ran 16 columns in the last seven days!), I forgot to mention that Robert Baldwin has a way to make progress at Doha.

Remember the special safeguard squabble? It may be largely attributable to a crummy formula:

Trigger levels for the special agricultural safeguard mechanism under negotiation in the Doha Round are expressed simply as percentage increases in the volume of imports over the preceding three years or percentage decreases in a product’s import price compared to its monthly average over the preceding three years.

But the effect of a given percentage increase in the volume of imports on the livelihood conditions of domestic farmers varies greatly depending on the level of import penetration…

A much better trigger mechanism that distinguishes between when developing countries do and do not need additional import protection to maintain food security and livelihood conditions of their poor farmers is simply the percentage increase in imports divided by the average consumption of the product over a recent period…

With a measure that indicates changes in market access opportunities for farmers much more accurately than relative changes in the volume of imports alone, the issue of whether safeguard actions should be permitted to raise import duties above pre-Doha Round levels should no longer be of major concern.

The shame is that all parties now agree on the need for a special safeguard mechanism, and they broadly agree on what it should achieve. The particular formula they have chosen, however, is too blunt to distinguish between safeguarding fragile livelihoods and old-fashioned protectionism.

Enough to get the talks back on track? Maybe not, but it sounds like a major improvement over the current formula.

Adam Smith and capital’s home bias

Ian Ayres and Doug Kysar, law profs at Yale, apply The Theory of Moral Sentiments to carbon trading. They include this paragraph:

In addition to his famous arguments in favor of markets and liberalized trade, Smith also had a well-worked-out theory of moral behavior, one that was not so neatly separated from his economic thought as we treat it today. For example, Smith’s arguments in favor of free trade included an assumption that owners of capital would naturally prefer domestic to foreign industry, even if the latter offered higher returns. Smith thought this was a good thing because it reflected the moral sentiments that ultimately help make markets work.

What? Citation, please.

I can find no such suggestion in chapter seven of Doug Irwin’s Against the Tide, “Adam Smith’s Case for Free Trade.” I do find this quotation, which seems at odds with Ayres and Kysar’s suggestion:

Every individual is continually exerting himself to find to the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society.” [Irwin p.76; Smith IV.ii.4]

Moreover, how does not pursuing the profit-maximising returns in allocating productive resources across industries or countries “help make markets work”? Smith wrote:

The value of its annual produce is certainly more or less diminished when it is thus turned away from producing commodities evidently of more value than the commodity which it is directed to produce. According to the supposition, that commodity could be purchased from foreign countries cheaper than it can be made at home. It could, therefore, have been purchased with a part only of the commodities, or, what is the same thing, with a part only of the price of the commodities, which the industry employed by an equal capital would have produced at home, had it been left to follow its natural course. [Irwin, p.79; Smith IV.ii.12]

If Ayres and Kysar are right about Smith, then I’d like to learn how capital’s home bias provides a public good necessary to the system of natural liberty or otherwise enhances simple-minded profit-seeking in the market. Synthesizing such a bias with Smith’s more familiar work quoted above doesn’t strike me as obvious.

Adam Smith and capital's home bias

Ian Ayres and Doug Kysar, law profs at Yale, apply The Theory of Moral Sentiments to carbon trading. They include this paragraph:

In addition to his famous arguments in favor of markets and liberalized trade, Smith also had a well-worked-out theory of moral behavior, one that was not so neatly separated from his economic thought as we treat it today. For example, Smith’s arguments in favor of free trade included an assumption that owners of capital would naturally prefer domestic to foreign industry, even if the latter offered higher returns. Smith thought this was a good thing because it reflected the moral sentiments that ultimately help make markets work.

What? Citation, please.

I can find no such suggestion in chapter seven of Doug Irwin’s Against the Tide, “Adam Smith’s Case for Free Trade.” I do find this quotation, which seems at odds with Ayres and Kysar’s suggestion:

Every individual is continually exerting himself to find to the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society.” [Irwin p.76; Smith IV.ii.4]

Moreover, how does not pursuing the profit-maximising returns in allocating productive resources across industries or countries “help make markets work”? Smith wrote:

The value of its annual produce is certainly more or less diminished when it is thus turned away from producing commodities evidently of more value than the commodity which it is directed to produce. According to the supposition, that commodity could be purchased from foreign countries cheaper than it can be made at home. It could, therefore, have been purchased with a part only of the commodities, or, what is the same thing, with a part only of the price of the commodities, which the industry employed by an equal capital would have produced at home, had it been left to follow its natural course. [Irwin, p.79; Smith IV.ii.12]

If Ayres and Kysar are right about Smith, then I’d like to learn how capital’s home bias provides a public good necessary to the system of natural liberty or otherwise enhances simple-minded profit-seeking in the market. Synthesizing such a bias with Smith’s more familiar work quoted above doesn’t strike me as obvious.

Adam Smith and capital's home bias

Ian Ayres and Doug Kysar, law profs at Yale, apply The Theory of Moral Sentiments to carbon trading. They include this paragraph:

In addition to his famous arguments in favor of markets and liberalized trade, Smith also had a well-worked-out theory of moral behavior, one that was not so neatly separated from his economic thought as we treat it today. For example, Smith’s arguments in favor of free trade included an assumption that owners of capital would naturally prefer domestic to foreign industry, even if the latter offered higher returns. Smith thought this was a good thing because it reflected the moral sentiments that ultimately help make markets work.

What? Citation, please.

I can find no such suggestion in chapter seven of Doug Irwin’s Against the Tide, “Adam Smith’s Case for Free Trade.” I do find this quotation, which seems at odds with Ayres and Kysar’s suggestion:

Every individual is continually exerting himself to find to the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society.” [Irwin p.76; Smith IV.ii.4]

Moreover, how does not pursuing the profit-maximising returns in allocating productive resources across industries or countries “help make markets work”? Smith wrote:

The value of its annual produce is certainly more or less diminished when it is thus turned away from producing commodities evidently of more value than the commodity which it is directed to produce. According to the supposition, that commodity could be purchased from foreign countries cheaper than it can be made at home. It could, therefore, have been purchased with a part only of the commodities, or, what is the same thing, with a part only of the price of the commodities, which the industry employed by an equal capital would have produced at home, had it been left to follow its natural course. [Irwin, p.79; Smith IV.ii.12]

If Ayres and Kysar are right about Smith, then I’d like to learn how capital’s home bias provides a public good necessary to the system of natural liberty or otherwise enhances simple-minded profit-seeking in the market. Synthesizing such a bias with Smith’s more familiar work quoted above doesn’t strike me as obvious.

Bailout plans cover foreign banks

This news is more than 36 hours old, which is ancient history as the biggest bailout ever unfolds at lightning speed:

In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night.

The theory, according to a participant in the negotiations, is that if the goal is to solve a liquidity crisis, it makes no sense to exclude banks that do a lot of lending in the United States.

Treasury Secretary Henry Paulson confirmed the change on ABC’s “This Week,” telling George Stephanopoulos that coverage of foreign-based banks is “a distinction without a difference to the American people.”