the end of America’s two-party system?

October 22nd, 2016

I look at the current US electoral situation: 330 million people, and Donald and Hillary are what the system has spat forth. What ought to have been a four-party election (Democrats/Republicans/Sanderians/Trumpfs) instead became a two-party slate so ghastly that the metaphor most commonly used to describe the situation is that of a burning dumpster. ….

I wonder if … what we’re witnessing is merely the painful birth of a three- or four-party US political system — something most mature democracies already have, and something the US ought to have seriously adopted decades ago were it not for the country’s battered-wife relationship with its dual-party system that dates back to the late 18th century.

Douglas Coupland on why America’s two-party system is no longer fit for purpose“, Financial Times Magazine, 22 October 2016 (metered paywall).

This plea for a four-party political system is attractive, but there is one small problem that receives little attention from Coupland. Each of the four parties would be quite small. A coalition of two or more parties would very likely be necessary to form a stable government, with support from a majority of the electorate. To me, the solution is obvious. Between them, the rump Democrats and rump Republicans could easily attract more than half of all votes in a general election. Moreover, the ideology of the two parties would be very similar (centre-left and centre-right) once the two parties shed supporters of Bernie Sanders and Donald Trump.

A rump Democrat/rump Republican coalition is not an unrealistic expectation. There are many precedents in Europe of stable governments formed by coalitions of parties from the moderate centre. In West Germany, for example, the centre-right Christian Democats partnered with the centre-left Christian Social Union to oversee the country’s postwar economic miracle. Something similar happened in Austria, where a “grand coalition” of conservatives (ÖVP) and socialists (SPÖ) shared power from 1945 to 1966, and again from 1988 to 2000. For more examples, some of which were less successful, see this recent article (metered paywall) in the Financial Times.

Canadian novelist and artist Douglas Coupland (born 1961) is single and lives in West Vancouver, British Columbia. Coupland’s first novel, Generation X: Tales for an Accelerated Culture (St. Martin’s Press, 1991) popularized terms such as “McJob” and “Generation X”. His 14th novel, Worst. Person. Ever, was published by Random House in 2013.

mathematics and economics

October 12th, 2016

Korean-American economist Yeomin Yoon calls on his colleagues to create, as Newton did, mathematical models to reflect observations of the real world. Instead, they frequently assume that the real world fits their theoretical models. An old joke is, if economists’ observations of the real world are inconsistent with their models, there must be something wrong with the real world!

[M]ainstream economists should learn from Isaac Newton, who developed his own calculus when he needed to solve a physical problem. Newton developed his mathematics as a tool to accommodate the observed facts so as to simplify his work. Mainstream economists frequently do the exact opposite: they create models of world and humans that fit their mathematics.

Deirdre McCloskey is right on the mark when she points out in The Secret Sins of Economics [Prickly Paradigm Press, 2002] that a large part of today’s theoretical economics is nothing more than a mathematical game with assumptions.

Yeomin Yoon, “Newton developed his own calculus as a tool to accommodate the facts“, letter to the editor, Financial Times, 12 October 2016 (metered paywall).

Yeomin Yoon (born 1942) is Professor of Finance and International Business at Seton Hall University, South Orange, NJ. There is much more in the full letter.
The link to McCloskey’s 58-page book is not gated.

the simple economics of carbon taxes

October 11th, 2016

I was shocked by a letter to the editor published in today’s Globe and Mail – a well-regarded newspaper based in Toronto and published in six Canadian cities.

Re The Trillion-Dollar Question, editorial (Focus, Oct. 8): The carbon tax is intended to change bad behaviour (carbon emissions) by making it more expensive to engage in that behaviour (Economics 101). If, as suggested in your editorial, the funds raised are then used to lower personal and business income tax rates, that will in effect remove the penalty and therefore behaviour will not change (Human Nature 101).

Bruce Henry, Waterloo, Ont., letter to the editor, The Globe and Mail, 11 October 2016.

I do not know what Human Nature 101 teaches, or if such a course even exists, but I do know that the downward sloping demand curve of Economics 101 teaches that a “revenue-neutral” tax will cause demand for the good that is taxed to fall. This is explained below, in the editorial that Mr Henry criticizes. For details, consult any microeconomics text.

For anyone other than climate-change deniers, significantly reducing greenhouse-gas emissions is a necessity. Unless you think we shouldn’t bother cutting carbon emissions, the most economically logical way of doing so is by putting a price on carbon. That’s Economics 101 – you know, the course conservatives usually accuse folks to their left of having skipped. It’s a solution involving free markets and price signals, rather than top-down meddling in the individual decisions of millions of people and firms. What’s more, higher taxes on carbon can be used to fund things like lower business or personal income tax rates – something conservatives constantly clamour for. ….

Ottawa is creating a national standard and leaving it up to each province to decide how to meet it. Beginning in 2018, carbon will have to be priced at $10 a tonne, with the price rising by $10 a year until it hits $50 in 2022.

What’s all that in plain English? A $10 tax on a tonne of carbon is equivalent to a tax on gasoline of 2 cents per litre. A $50 per tonne price means a gas tax of 11 cents a litre. ….

Yes, any extra tax, no matter how small, is deplorable if the levy is unnecessary, or the money wasted. But in the case of the carbon levy, every cent raised remains within the province. Each province can design its own system and use the money however it likes. Not one red cent has to go to Ottawa. ….

The idea of making a carbon tax “revenue-neutral” was pioneered by B.C. The $1.2-billion a year raised by its $30-a-tonne carbon tax is used to lower the province’s middle-class income tax rate and provide benefits for lower-income British Columbians. Some carbon-tax cash is also used to support the province’s film industry – so, no, it’s not perfectly revenue-neutral. But it’s close. ….

Carbon pricing is the way to go, for the economy and the environment. But what about the politics? That’s the trillion-dollar question.

Why conservatives have it wrong about Trudeau’s carbon tax“, editorial, The Globe and Mail, 8 October 2016.

Syrian refugees in Victoria, BC

October 10th, 2016

Canada last year made a commitment to bring 25,000 of Syria’s 4.5 million refugees to the country as immigrants. The 25,000 target was met in early 2016, and 30,862 Syrian refugees are now in Canada. This is a small number compared to the total number of refugees, but large compared to the 10,000 number of the USA, which attained this low target only in August of 2016. The US population is ten times larger than that of Canada, yet Canada has brought in three times as many refugees.

The small city of Victoria, BC (metropolitan population 345,000) has warmly welcomed 154 Syrian refugees (40 families). Some of the refugees are supported by Canada’s federal government, others by private sponsors such as churches, temples and mosques. There is no discrimination by religion. Jewish temples, for example, proudly sponsor Muslim refugees.

There has been little press coverage in Canada of this influx of Syrian refugees, a reflection of the fact that resettlement is taking place peacefully, without incidents. The initial flood of refugee support has unfortunately slowed, however, precisely because refugees rarely feature in the news. For this reason, I was pleased to see publication in a Victoria newspaper of a plea for more sponsors of refugees.

[Jean McRae, CEO of the Intercultural Association of Greater Victoria] explained language is a significant issue for the newcomers.

“Without a working knowledge of English, it’s hard for them to find employment, and the children, who have already had significant disruptions in their education, find it difficult to catch up in a new language,” said McRae, adding the stellar work of the school system and volunteers in providing help with English education has helped to address the situation.

“We also run workshops on the Canadian workplace, teaching the refugees how to look for work, prepare a resume, reply to online job offerings and even how to handle interviews. It’s a completely different culture, and we know that getting them here was just the beginning of the work that needs to be done.” ….

The commitment of the government and private sponsors has been to provide housing and support for one year, noted McRae, adding that, for some, it may not be reasonable to expect full self sufficiency at the end of that time.

“Of course, we’ll stay in touch with them beyond the first year and help where we can. But I can tell you these people are quite amazing and I have no doubt they’ll soon find their way to becoming self sufficient and contributing residents to Victoria.”

Tim Collins, “Sponsors still needed for many more Syrian refugees“, Victoria News, 7 October 2016.

in praise of messiness

October 8th, 2016

Undercover Economist Tim Harford explains why highly performing office workers tend to be messy pilers rather than neat filers.

Filers like to establish a formal organisational structure for their paper documents. Pilers, by contrast, let pieces of paper build up around their desks or, as we have now learnt to say, implement an LRU-cache.

To most of us, it may seem obvious that piling is dysfunctional while filing is the act of a serious professional. Yet when researchers from the office design company Herman Miller looked at high-performing office workers, they found that they tended to be pilers. They let documents accumulate on their desks, used their physical presence as a reminder to do work, and relied on subtle cues — physical alignment, dog-ears, or a stray Post-it note — to orient themselves. ….

[Benjamin] Franklin was a messy fellow his entire life, despite 60 years of trying to reform himself, and remained convinced that if only he could learn to tidy up, he would become a more successful and productive person. But any outsider can see that it is absurd to think such a rich life could have been yet further enriched by assiduous use of a filing cabinet. Franklin was deluding himself.

Tim Harford, “There’s magic in mess: why you should embrace a disorderly desk“, Financial Times Magazine, 8 October 2016 (metered paywall).

There is much more in the full article, which is based on Tim Harford’s latest book, Messy: The Power of Disorder to Transform Our Lives (Riverhead/Little, Brown, 2016).

You can also hear Mr Harford discuss this topic with Cariff Garcia in an FT business and economics podcast:

Tim Harford joined me to discuss his latest book, Messy: The Power of Disorder to Transform Our Lives. This was a deeply engaging and fun conversation. Messy is the best longform manifestation yet of Tim’s knack for revealing counterintuitive truths, using social science and original interviews to find the underlying sense in our lives that we often fail to see — and thus fail to appreciate. ….

[F]or the text-only crowd, click below to open a PDF transcript of our chat.

Cardiff Garcia, “Alphachat: Tim Harford on the unheralded virtue of messiness“, FT Alphaville, 8 October 2016 (unmetered access for all FT blogs and podcasts – free registration required).

Alphachat is also available on Acast, iTunes and Stitcher.

Uber and public transit

October 6th, 2016

FT journalist Leslie Hook describes a new deal for Uber in Summit, New Jersey, a commuter community just 45-minutes from mid-town Manhattan. The town of Summit contracted Uber to provide residents free rides to and from its train station. This is the first deal of this kind for Uber, but similar deals may be coming.

The Summit deal focuses on what is known as the “last mile” problem of getting commuters to and from rail stations, which researchers consider to be an ideal use case for ride-sharing. ….

Facing budget pressures, US cities are increasingly experimenting to see whether hiring Uber, or its smaller rival Lyft, can be a cheaper alternative to building parking garages or adding bus routes. Personal car ownership is the primary mode of transportation in the US, where only 2 per cent of trips take place on public transportation, a level far lower than other developed nations. (Emphasis added.)

Last month, Boston announced a test programme that subsidises Uber and Lyft rides for disabled passengers, a faster option compared with the city’s door-to-door van service. Earlier this year, a county in Florida started providing free Uber rides at night for low-income passengers — a cheaper alternative to a night bus.

Leslie Hook, “Uber meshes with US public transit in small-town drive“, Financial Times, 6 October 2016 (metered paywall).

Ms Hook is the FT’s San Francisco correspondent. If her 2% statistic for use of mass transportation is correct, this is shameful. It would be nice to see the statistics for large, urban areas such as New York City, Boston, Chicago, Miami and Los Angeles. Use of public transportation is no doubt higher in large cities.

Years ago, when living in Mexico City, I recall reading that automobiles (presumably including taxis) transported only 13% of the commuters, leaving public transportation (underground rail and buses) to transport the remaining 87%. Even so, traffic jams during rush hours were frequent and often horrific. Needless to say, so was the smog.

lessons for Trump from the VP debate

October 5th, 2016

FT columnist Edward Luce has written an informative (and usefully opinionated) op-ed on last night’s ‘debate’ between the deputies of presidential candidates Donald Trump and Hillary Clinton.

Mr Trump, who tweeted 49 times during the event — roughly every two minutes — might have learnt a thing or two from how his deputy dealt with it. In contrast to Mr Trump, Mike Pence kept calm, rarely butted in and declined to rise to the bait. … [T]he normally serene Tim Kaine, Hillary Clinton’s running mate, played the attack dog. ….

…. It was almost a mirror image of the roles adopted by Mr Trump and Mrs Clinton last week. By that measure Mr Kaine was the loser.

That said, on factual points Mr Kaine clearly had the better of it. There was something very 2016 about Mr Pence shaking his head every time Mr Kaine quoted one of Mr Trump’s lines as if it were inconceivable he could say something so mean-spirited — yet still coming across as the winner because he is more polished on television. ….

But Mr Pence has shown [Trump] a way forward. Deny, change the subject, prevaricate — anything rather than talk about tax avoidance, or the insults hurled at overweight women, decorated war heroes, and the like.

Edward Luce, “VP debate shows a way forward for Trump“, Financial Times, 5 October 2016 (metered paywall).

Will Trump follow the example of Mike Pence in the two upcoming debates with Hillary Clinton, or will he continue to accept his opponent’s bait? We will soon see.

Donald Trump’s appeal

October 3rd, 2016

FT columnist Edward Luce writes that Trump’s message continues to attract a large number of voters, despite the candidate’s obvious character flaws.

However recklessly he [Donald Trump] behaves, roughly 40 per cent of America will still vote for him. There are lessons here for Mrs Clinton and the rest of the Republican Party which both would rather ignore. If Mr Trump loses, it will be because of his character — not because of his message.

Edward Luce, “Donald Trump’s problem with impulse control“, Financial Times, 3 October 2016 (metered paywall).

retirement savings (cartoon)

October 3rd, 2016

Consumers who save via pension are financially worse off than if they had invested the money themselves, according to new research.

FTfm: This week’s cartoon“, Fund Management, Financial Times, 3 October 2016 (metered paywall).

Details are provided in a column published last week:

Consumers who save via a pension fund are financially worse off than if they had invested the money themselves, according to new research. High fees, opaque commissions and taxes have been criticised for putting the retirement incomes of millions of European savers at risk. ….

Better Finance, the investor rights group that carried out the research, said … a direct investment — 50 per cent in equities and 50 per cent in euro bonds — at the turn of the century would have returned 105 per cent gross of fees and taxes, or 47 per cent in real terms. That is an average of 2.5 per cent a year.

In contrast, some French pension savers lost an average of 0.8 per cent a year since 2000, while those in Spain and Italy also experienced losses over the same period after accounting for inflation.

Attracta Mooney, “Value of saving via pension funds questioned”, Financial Times, 27 September 2016 (metered paywall).

neo-Maoists in China

October 2nd, 2016

FT columnist Jamil Anderlini has written an excellent column on the Maoist revival in China. Here are some brief excerpts.

China has … seen the rise of a vocal political movement of “neo-Maoists” — militant leftists who espouse many of the utopian egalitarian ideas that China’s current leaders have largely abandoned. ….

President Xi himself has done possibly more than anyone to foster the current Maoist revival. ….

Xi’s embrace of Mao is … puzzling because of the danger inherent in reminding people of the concepts he [Mao] stood for. After all, Mao was a romantic revolutionary who called on workers and peasants to take up arms and overthrow the ossified authoritarian system that concentrated wealth in the hands of the powerful. And while it still calls itself communist, the Chinese government has abandoned almost all of the economic and social ideals that Mao espoused. Xi himself, like many of his colleagues, has supported free-market reforms that Mao would have loathed. ….

The Maoist revival … has a pseudo-religious, mystical dimension, which seems particularly incongruous given Mao’s hatred of organised religion. “Mao Zedong stood for the people, for the folks of the lowest level, so Mao has become the people’s Mao,” says Zhang Hongliang, the neo-Maoist leader. “This is somewhat like Jesus of Christianity; at the start, Jesus was a poor person’s Jesus, the public’s Jesus. With the strength of this public force, Christianity came to rule and be the western powers’ guiding ideology.”

Jamil Anderlini, “The return of Mao: a new threat to China’s politics“, Financial Times Weekend Magazine, 1 October 2016 (metered paywall).

Mr Anderlini is the Financial Times‘ Asia Editor. He resides in Hong Kong, was born in Kuwait and grew up in New Zealand, where he earned degrees from Victoria University and Auckland University of Technology.