I have a piece up at Forbes.com trying to unravel why governments so unerringly back losers:
There’s a more sinister logic behind the pattern of government favoritism. Namely, firms in emerging, competitive industries have virtually no incentive to lobby for government hand-outs, while firms in aging, shrinking industries have the most to gain.
Here’s why: Firms in an open, competitive, growing young industry have little to gain from government support. More government funding for, say, biotechnology, is going to mean more biotechnology companies, more competition and (perhaps) more innovation. That might be good for America, but probably not much good for any single biotech company. Sure, they’ll all enjoy the government help, but each must weigh that assistance against the swarm of new competitors attracted by the handouts. No one firm would choose to hire top lobbyists and send them to D.C. to bring back the pork.
By contrast, firms in aging, shrinking, capital-intensive industries have everything to gain from government support. Because the industry is shrinking and it’s expensive to enter–think steel mills–the government subsidies and tax breaks are probably not going to attract new competitors. If there are no new competitors, the old guard gets to pocket all the money.
Today is a big day for me. I’m in Seattle, and that means I get to meet Yoram Bauman, the world’s only stand-up economist. I can tell we’re going to have a blast. Yoram’s finest hour, so far, is here.
Are you a young economist, or a teacher of young economists?
If so, do check out the Royal Economic Society’s Young Economist Essay competition. Total prize money is £2000, with £1000 for the winner. The title this year is:
“Which economic idea or policy has the most power to improve our lives?”
For more details, check out the RES competition website, hosted by teacher-training company Tutor2U. Last year’s winner is here, and ongoing details will be posted here.
A couple of years back, Richard Florida published this arresting article, "The World is Spiky" [pdf], in Atlantic Monthly. The Logic of Life also contains a chapter called "The World is Spiky". It’s not a coincidence: I stole Richard’s wonderful title without shame.
Why no shame? Because I had a nice footnote next to the title saying "I stole this title from Richard Florida", or words to that effect. No problem. Except that the style these days is to conceal footnotes. If you see something in the book and wonder where it came from, you have to flip to the back and check the source. No problem for the casual reader, not much of a problem for the serious researcher checking a fact or piece of data. But no good at all for acknowledging the pinching of a good title. The acknowledgement is there, but I doubt many people will find it. Sorry.
Now I’ve confessed in public, I feel better. Just in time, too: I’m going to meet Richard on Friday and I’m looking forward to it. His blog is one of the few I follow regularly and his forthcoming book, "Who’s Your City?", is sensationally good. But if I steal anything from it, I’ll be sure to acknowledge that a bit better…
I was due to appear at The Gladstone Hotel Gallery, 1214 Queen St West, Toronto Thurs Jan 31; 7:30 pm (doors 7pm), but sadly not. The event is cancelled and I’m very sorry about this. I’ve been routed back to New York to do TV there instead & will arrive in Toronto too late for the planned event. I apologise.
While I’ve been out of the country, my British publishers decided to publish "The Logic of Life" early and not tell me. So, all you Brits, please buy a copy!
From The Onion, "I’ve Got a Lot of Love to Barter":
Relationships are a two-way street, and you can’t expect to make them work unless you’re willing to get out there and risk being hurt. Took me a long time to learn that, but now that I’m ready to open my heart to another person, it’s only a matter of time before I find my soulmate. So look out, world, because I’ve got a whole lot of love to give to the first person who can match that love with a similar offer or its equivalent in luxury items, birthday and anniversary presents, or cash.
The writer is female; unlucky. Chapter three of "The Logic of Life" points out that women in most cities in the developed world open their bartering from a weak positiion because there are not enough men to go around.
I apologise. This blog seems to be mutating from "Tim Harford talks about everyone else" to "everyone else talks about Tim Harford". It is just a passing phase, I assure you. I almost didn’t link to this nice profile by David Smith, economics editor of the Sunday Times, but perhaps readers of this blog might be interested:
Tim Harford, despite his jacket, jeans and baseball boots, still looks like the Oxford economics tutor he used to be. But now he has become a bestselling author, and he has done it by applying the economics he used to teach his students to real life…
His second book, The Logic of Life, is published next week by Little, Brown. Harford is one of life’s nice guys, so it is a bit of a shock to open the new book and go straight into oral sex, apparently the rational choice of American teenagers worried about Aids or abortion. But like its predecessor it is never short of interest.
Update: While we’re at on the subject of The Logic of Life, a nice long piece by Glenn Reynolds of Instapundit in the New York Post, entitled "Milton Friedman explains Mr Big". And Marginal Revolution’s book forum continues.
Iowa and New Hampshire are tiny states, and they have too few electoral college votes to exert much direct influence over who runs for president. Yet everybody agrees that their indirect influence is vast. The Republican hopeful Mitt Romney was all but written off after failing to win in either state (although Michigan has given him a sudden resurrection); Democratic contender Hillary Clinton went from favourite to also-ran to favourite again after losing the Iowa caucus and then winning the New Hampshire primary. Does it make any sense that such tiny states largely determine the candidates’ fortunes, or does it simply indicate that voters are acting like sheep?
That question poses a false dilemma. Yes, voters are acting like sheep. But, yes, it all makes perfect sense. There are two good reasons why early success matters.
The first is that many donors want to back the winning candidate, whoever that is. Certainly, some donors are true believers, but many others also care about being on the winning side.
The remainder of this column can be read here. Please post comments below.
I am perplexed by the enormous publicity devoted to the subprime debacle while micro-credit lenders have been showered with praise. Isn’t Countrywide just a micro-credit lender for the US, except that people are borrowing for homes rather than bullocks? And why are borrowers in developing countries so much better at repaying their loans?
Dear Bombay Beauty,
No problem explaining why it is easier to repay a microfinance loan: the loans are a lot smaller. Beyond that, you have a point. Microfinance loans, like subprime loans, target poor clients in underserved communities, and charge high interest rates.
The economist Dean Karlan argues that the difference is largely about spin. We hear about the far-away people whose lives have been transformed by microfinance, and we hear about the subprime defaulters whose lives are in a mess. But Karlan points out that micro-credit borrowers do default, and that subprime default rates are much lower than you would think. And while some subprime borrowers were duped by complicated loan terms, financial literacy is even worse in developing countries.
Karlan also argues that micro-credit “group liability” schemes are overrated. In such a scheme, friends and neighbours have to make up the shortfall if someone can’t pay. But an experiment carried out by Karlan showed that such schemes put off borrowers without increasing repayment rates.
None of this is to condemn microfinance. Rather, it is worth remembering that poor people can benefit from access to credit, even if the credit is expensive – and even if they live in the US.
Questions to email@example.com