The Zig Zag

Welfare Reform

A 25-year-old waitress who turned down a job providing "sexual services'' at a brothel in Berlin faces possible cuts to her unemployment benefit under laws introduced this year.

Who says the Germans serious about reforming the welfare state?

FRANK R. BRUSHABER

FRANK R. BRUSHABER, Appt.,

UNION PACIFIC RAILROAD COMPANY.

Today is the anniversary of the U.S. Supreme Court's ruling in 1916 that income tax is a violation of the Constitution. But like most good things it couldnt last - the politicians just changed the Constitution.

The Real World

TSUNAMI-struck Thailand has been told by the European Commission that it must buy six A380 Airbus aircraft if it wants to escape the tariffs against its fishing industry.

Nice.

Is Poland the Next Spain?

Is Poland the Next Spain? Ask Francesco Caselli, Silvana Tenreyro. Does that mean we can expect pig fighting, vodka sangria and sunshine in Warsaw sometime soon.

Multicultural Maths

What nonsense is this?

�The school department was recently forced to publicly admit that the sixth-grade MCAS math scores have steadily declined over the past three years to the point where 32 percent of sixth-graders are now in the "warning" or "needs improvement" category.�

Why

]]> ?

�The school department offered no tangible explanation for these declining scores other than to admit that they have no explanation, as articulated by Assistant Superintendent for Curriculum and Instruction Carolyn Wyatt (salary $106,804), "[The results] have decreased, incrementally, each year and continue to puzzle us." She went on to admit that this downward trend is peculiar to Newton and "is not being seen statewide." Again, she offered no explanation, but she did assure the School Committee that her assistant, Math Coordinator Mary Eich (salary $101,399), is currently investigating the problem.�
One suspects that Mary will not find out why. As the article observes, there is only one likely answer:-
� what has changed in the elementary and middle school math curriculum to have affected such a dramatic decline in the MCAS scores?
Answer: the new math curriculum, otherwise known as anti-racist multicultural math. In 2001 Mr. Young, Mrs. Wyatt and an assortment of other well-paid school administrators, defined the new number-one priority for teaching mathematics, as documented in the curriculum benchmarks, "Respect for Human Differences

Really no comment needed. Madness

Risk Averse Research

Interesting article here about the ossification in US scientific research:-

�"We have developed an incentive system for young scientists that is much too risk-averse," Bruce Alberts, president of the National Academy of Sciences, said in a speech last year. Alberts, whose organization advises the federal government on scientific and technical matters, was basing his comments on biological research. But, he said, "I suspect that similar considerations also apply in many other areas of science."

]]> As usual the article goes on to argue that various reforms to government research proposals need to be made. In reality it seem that in the sciences what we�re observing is just regulatory capture, the scientific community is more geared towards playing the system than developing research:-

�One feature of the existing research system is that scientists are getting older before they pin down funding of their own to pursue experiments, Alberts said in his speech. "Almost no one finds it possible to start an independent scientific career under the age of 35," he said. "Even the most talented of our young people seem to be forced to endure several years of rejected grant applications before they finally acquire enough 'preliminary data' to assure the reviewers that they are likely to accomplish their stated goals. Weinstein said the current situation differs from a time when young people were allowed to publish highly speculative, even wrong assertions, on their path to major discoveries. This applies to both Albert Einstein and Nobel prize-winning physicist Paul Dirac, he said. The system effectively discourages scientists from doing excellent work, Weinstein said.

In other words the system now rewards those in power as opposed to those who produce. The answer seem obvious � privatize research � compare and contrast these two.

Super Dumbo?

Commenting on the launch of the new super jumbo:

� �Chirac said the debut of the A380 "is for all of us a moment of emotion and pride" and "a great success for Europe."

German Chancellor Gerhard Schroeder struck a similar chord, calling the A380 a "triumph of European science and European engineering."

words that should strike fear into any shareholders � no mention of a triumpj of Euroepan business planning.

My view is that as long as Boeing is still capable of making 747�s it will prevent Airbus charging prices high enough to earn super normal profits. The other concern has to be baggage:-

�London's Heathrow airport says it is spending over $800 million, providing everything from double-decker passenger ramps to enlarged baggage conveyors capable of processing 555 passengers on one flight.

Other airports are spending billions more on similar improvements, but there is concern that some may not be ready in time.�

And if they aren�t then serious network effects kick in � airlines may be able to transport passengers at a lower cost in the A380 but if you have to wait an hour for your baggage at the other end will it be worth it.

We have the technology

Interesting article about how trying to use telephone to warn of the tsunami was the wrong strategy:-

Then there's the other half of the problem: critical information getting stuck in bureaucratic, 20th-century back channels. With plenty of time to save thousands of lives, seismologists working in Hawaii, Harvard University, Australia and Thailand had some inkling about the destructive tsunamis moving across the Indian Ocean. Those scientists wanted to get warnings out. They tried calling officials in affected countries but didn't have the right phone numbers, or no one picked up.

]]> Charles McCreery, director of the National Oceanic and Atmospheric Administration's center in Honolulu, told Reuters: "We don't have contacts in our address book for anybody in that part of the world." Phone calls! Address books! How sad is that? Even if somebody answers, telephones are one-to-one communication � a terrible waste of time in an emergency.
The Net has brought one-to-many communication to everyday life: blogs, Web pages, bulletin boards like Slashdot, even e-mail lists. Any Net user can post so millions of others can see it.
Other Net users who see the post might e-mail it around to people who, in turn, post it other places. In that viral way, a piece of vital information can reach millions in the time it takes to hard-boil an egg.
If seismologists had flung their warnings to the Web when the phone calls failed, some kind of alert might have reached the beaches of Phuket or Tangara � or perhaps the CNN newsroom, where a reporter might have put the story on a channel that was probably being watched in a number of resort hotel rooms.
The downside of such open communication is the possibility of fraud. Someone clever could, perhaps, send panic up and down a coastline. But the upside of using 21st-century communication for emergencies is too great to ignore.

The possibility of fraud is obvious but the net has proven, in cases like Rathergate and the early election polls, relatively adept at quickly rooting out a fraud. Dispersed early warnings through the net are certainly something that needs to be considered next time.

Drowning in Aid

Is there a danger that too much aid is being raised for the Tsunami disaster funds? The signs are there for some :-

�The Australian branch of aid agency Medecins Sans Frontieres (MSF, Doctors without Borders) has become possibly the first in the world to ask donors to stop pledging money to its tsunami appeal. The local MSF branch paused its appeal after reaching its $1 million [US$ 0.77 million] target in just three days. It decided it would be breaching its ethical code to collect money if it could not be used for its designated purpose�

It's worth remembering that the structural damage caused was not huge; damage was mainly limited to poor undeveloped coastal communities and didn�t destroy much expensive infrastructure such as power plants and bridges. So beyond ensuring that there is no disease outbreak, water is supplied and that victims e re-housed, it is hard to see what the money will be spent on. And aid without an aim can do more harm than good.

There are a number of channels though which this may occur;_

1. A signaling effect:- some business are already complaining that the excessive coverage to drum up aid is harming their ability to redevelop their livelihoods and business:-
Much to our dismay there are many unsubstantiated news stories about �total destruction� of Phuket�s coral reefs. Even our own effort to bring a CBS team to the Similans for a first hand look turned into a nightmare when they broke their promise and turned it into yet another �spectacular disaster� story. Our crew and passengers were quoted out of context and our underwater video footage used incorrectly. Never again!�
As long as the aid agencies are raising and spending money they will be implicitly advertising that the relevant areas are disaster zones and should therefore not be visited.

]]> 2. Crowding Out and Inflation
Aid agencies live in hotels and buy local goods. Typically they have limited cash controls meaning that the price of local goods may be artificially inflated in the affected area. This not only distorts price signals but again may discourage tourists and the establishment of new businesses.

3. Carpet BaggingThe presence of large numbers of NGO�s with little idea of how to spend the money will undoubtedly attract some unscrupulous carpet baggers with ideas about how this money should be spent. More dangerously, in areas already fairly lawless this can spill over into the warlordism that afflicted the aid effort in Somalia in the 90�s. there are already signs of fights over aid starting to break out in Sri Lanka where the Tamil Tigers are already starting to compete with the Sinhalese government over the allocation of aid.

But of course all this will be ignored because there isn�t really any one in charge with the incentive to care.

Housing Hedge

For those seeking protection against the �housing bubble�:-

�Macro Securities Research, a company affiliated with Robert J. Shiller, the Yale economist, has reached an agreement with the Chicago Mercantile Exchange to list pairs of derivative instruments that are essentially index funds linked to home prices in certain markets. One instrument in each pair will rise as its market index rises; the other will rise as the same index falls. That will let investors bet on the direction of housing prices. Similar, but less sensitive, vehicles are being offered by HedgeStreet, a firm in San Mateo, Calif., that offers small-scale derivatives speculation online. �

In theory this sounds like a perfect way to protect homeowners hedge against the vicissitudes of the housing market. In reality, this is unlikely to be the case as very few homeowners would want to fully hedge, why? Well in a housing boom, it means that everyone else�s house has gone up in price while yours has stayed put. And given that boom times are when people are most likely to want to move in order to seize better job opportunities, they could find themselves priced out of the housing market in the new location.

Instead this product is likely to be of greater benefit to those who might expect to loose their job, and hence need to move to get another, when the housing bubble bursts. Like realtors.

Immigration and Emmigration

Stingy or Whingy?

Jan Egeland, U.N. Under-Secretary-General for Humanitarian Affairs and Emergency Relief Coordinator, recently criticized the U.S. commitment to the tsunami disaster as �stingy�. This whinge is probably based more on a manufactured perception that the US is not very generous when it comes to aid.

So is it? The table often used to back up this assertion is official aid as a % of GNI/GDP drawn up by the OECD and this does show that the US is the �stingiest� donor in the developed world. However once private aid flows are added, the US looks decidedly average in terms of generosity, as the figure above shows. There are obviously big questions about what �private� aid flows actually are and the OECD figures and definitions seem to me to be rather opaque. For instance, looking at the size of some of the figures, I don't think that they incorporate large donations such as the Bill and Melissa Gates foundation�s 30 billion. Nonetheless, last year 14 billion out of the total of 30 billion of private aid came from the US. Thus despite constituting about a quarter of the world's economy, the US contributed about half of the worlds private development funds. Similarly when we look at private NGO aid flows (shown below), the US is clearly an above average donor.

So overall it seems that while the US is a stingy "official donor" , its a generous private donor making it an average donor overall. So why is the stingy myth so prevalent? Probably because Mr Egeland's wage is paid from official not private aid and so he needs to make sure that the world keeps giving.

]]> data is from the OECD 3 and a more roust defense of the US record is here.

Lessons or Sensors?

From The Economist:

�With the death toll from South Asia�s tsunamis at almost 60,000 and still rising, there have been calls for a system to alert countries bordering the Indian Ocean when undersea earthquakes happen.�

But
��Tsunamis are fairly common in the Pacific, whereas in the Indian Ocean they may occur only once in a century. This makes it harder for the developing countries around the Indian Ocean�s rim to justify spending money on detecting tsunamis and preparing mass evacuation plans, rather than on more everyday life-saving measures such as basic sanitation and health services.�
So
]]> �One rather low-tech way of reducing the casualty toll from tsunamis is to teach coastal dwellers to recognize the signs that one is imminent�such as strong and prolonged ground shaking�and to flee immediately to higher ground. Shortly after a tsunami hit Papua New Guinea in 1998, killing more than 2,000 people, an international team was sent to Vanuatu, a group of Pacific islands, to teach locals to spot the warning signs. When a tsunami struck the islands soon after, it killed only five people. �
This seems about right. One feature about earthquakes as distinct from other acts of God such as storms and asteroid strikes is that their probability of occurrence is not independent; if a large earthquake occurs then the probability that another one will occur in the same spot is reduced, since the earthquake will have relieved the tectonic pressures that were it�s cause.
This suggests that an ealy warning system in the Indian Ocean is almost certainly not a economic propostion now since the earthquake of the 27th occurred in the only part of the ring of fire that could send a tsunami across the Indian Ocean.

By contrast, since South Asia�s tsunamis will have made the world�s costal dwellers willing listeners, the costs of instructing them to recognize the signs have temporarily fallen. Therefore using aid to deliver tsunami safefty lessons in other parts of the world that are more likely to be affected should be a current priority.

Trade and Aid

While it might sound a little callous to start thinking of the economic fallout of the Asian tsunami, its worth looking how dependent some of the affected countries are on tourism:-

India: 5.6% of jobs 4.9% of GDP,
Indonesia: 8.5% of jobs 10.3% of GDP
Thailand: 8.9% of jobs 12.2% of GDP
Maldives: 64% of jobs 74.% of GDP
Malaysia: 12.7% of jobs 14.7% of GDP

And of course the majority of these jobs are seasonal, poorly paid with workers relying on earnings in the high season to tide themselves over in the low. A lot of people are currently asking about where to send aid. Aid is obviously necessary to combat the risk of disease, feed the destitute and replace ruined capital. But the damage to human capital is perhaps as great if the disaster is followed by a sustained slump in tourism� an unemployed cook looses his skills if out of work too long and an established restaurant may be shut down if trade slumps. And once these go, they are often hard to replace and have spillover effects as they feed into social tensions.

So instead of (or as well as) sending that donation, how about waiting till we know which hotels are still ok and booking a holiday in one or near one of the worst affected areas � even if it is the off season. You also get the added benefit of learning how trade benefits both parties � without the pain of having it explained to you by some droning economist.

Biting the hand that feeds it

"Microsoft will have to pay a record half billion euro fine and share confidential details of its code after a court today upheld European Commission sanctions against the company for abusing its market dominance. The EU's Court of First Instance has dismissed a plea for Microsoft to be freed from the penalties while the software giant fights them on appeal.
In its ruling, the Court noted dryly that Microsoft could afford it. It said: "The evidence adduced by Microsoft is not sufficient to show that implementation of the remedies imposed by the commission might cause serious and irreparable damage."

This judgment is expected but the terms are unusually harsh - possibly imbued with a certain �political� view point. At some point you have to wonder what would be the consequences if Microsoft just stopped selling to Europe. Who�s loose more?