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December 7, 2007

Economist's View - 8 new articles

"The Historical Origins of Africa's Underdevelopment"

Nathan Nunn finds that "without the slave trades, 72% of Africa's income gap with the rest of the world would not exist today":

The Historical Origins of Africa's Underdevelopment, by Nathan Nunn, Vox EU: Africa's poor economic performance is one of the largest puzzles in growth and development economics. A large literature has emerged trying to explain the source of Africa's growth tragedy. See for example Easterly and Levine (1997), or Sachs and Warner (1997).

African historians have documented the detrimental effects that the slave trades had on the institutions and structures of African societies. Historical evidence from case studies show how the slave trade caused political instability, weakened states, promoted political and social fragmentation, and resulted in a deterioration of domestic legal institutions.

Between 1400 and 1900, the African continent experienced four simultaneous slave trades. The largest and most well-known is the trans-Atlantic slave trade where, beginning in the fifteenth century, slaves were shipped from West Africa, West Central Africa, and Eastern Africa to the European colonies in the New World. The three other slave trades -- the trans-Saharan, Red Sea, and Indian Ocean slave trades -- are much older and predate the trans-Atlantic slave trade. During the trans-Saharan slave trade, slaves were taken from south of the Saharan desert and shipped to Northern Africa. In the Red Sea slave trade, slaves were taken from inland of the Red Sea and shipped to the Middle East and India. In the Indian Ocean slave trade, slaves were taken from Eastern Africa and shipped either to the Middle East, India or to plantation islands in the Indian Ocean.

In a recent paper, I explore empirically whether these detrimental effects of the slave trades can explain part of Africa's current underdevelopment.[1]

I do this by first constructing estimates of the number of slaves taken from each country in Africa between 1400 and 1900. The estimates are constructed by combining data of the number of slaves shipped from each African port or region with data from historical documents reporting the ethnic identities of slaves taken from Africa.

If the slave trades are partly responsible for Africa's current underdevelopment, then looking across countries within Africa, one should observe that the parts of Africa that are the poorest today are also the areas from which the largest number of slaves were taken in the past. My research shows that this is indeed the case. The countries from which the most slaves were taken (taking into account differences in country size) are today the poorest in Africa. This can be seen in figure 1, which shows the relationship between the number of slaves taken between 1400 and 1900 and average real per capita GDP measured in 2000. As the figure clearly shows, the relationship is extremely strong. As well, the relationship remains robust when many other key determinants of economic development are taken into account.

Voximmig Note: Graph replaced - Original here

An alternative explanation for the relationship is that the parts of Africa from which the largest number of slaves were taken were initially the most underdeveloped. Today, because these characteristics persist, these parts of Africa continue to be underdeveloped and poor. My research examines this alternative hypothesis by testing whether it was in fact the initially least developed parts of Africa that engaged most heavily in the slave trades. I find that the data and the historical evidence suggest that, if anything, it was the parts of Africa that were initially the most developed, not least developed, that supplied the largest number of slaves.

I also use instrumental variables to identify the causal effect of the slave trade on economic development. As instruments, I use distances from each country to the locations of the demand for slaves as instruments to estimate the causal effect of the slave trades on economic development. The instrumental variables estimates confirmed the OLS estimates, suggesting that increased extraction during the slave trades resulted in worse economic performance.

Although much research remains to be done before we have a clear and deep understanding of exactly how and why the slave trades have been so detrimental for economic development, my initial analysis of the data is consistent with historic accounts suggesting that the slave trades impeded the formation of broader ethnic groups, leading to ethnic fractionalisation, and that the slave trades resulted in a weakening and underdevelopment of political structures. The countries from which the largest numbers of slaves were taken are also the areas that had the most underdeveloped political structures at the end of the 19th century, and they are also the areas that are the most ethnically fragmented today.

Using the estimates of the impact of the slave trades on economic development, I am able to provide an estimate of how much more developed Africa would be if the slave trades had not taken place.

The average per capita income level of the countries in Africa is $1,834, measured in 2000. This is significantly lower than the income for the rest of the world (which is $8,809), and it is even much lower than the income of other developing countries (which is $4,868).[2]

Conclusions

According to my calculations, if the slave trades had not occurred, then 72% of the average income gap between Africa and the rest of the world would not exist today, and 99% of the income gap between Africa and the rest of the underdeveloped world would not exist. In terms of economic development, Africa would not look any different from the other developing countries in the world.

This finding is striking. These results may not be the final and definitive explanation for the origins of Africa's severe underdevelopment, but they do provide very strong evidence that much of Africa's poor performance can be explained by its history, which is characterised by over 400 years of slave raiding.

References

William Easterly and Ross Levine, "Africa's Growth Tragedy: Policies and Ethnic Divisions," Quarterly Journal of Economics, 112 (1997): 1203–1250.

Jeffrey Sachs and Andrew Warner, "Sources of Slow Growth in African Economies," Journal of African Economies, 6 (1997): 335–376.

Footnotes

1 Nunn, Nathan. "The Long-Term Effects of Africa's Slave Trades." Quarterly Journal of Economics, 123 (2008): forthcoming.

2 I define a developing country as one with 2000 per capita income less than $14,000. According to this definition the poorest developed country is Portugal, and richest developing country is Barbados.

Legal vs. Illegal Immigration Isn't the Real Issue

Michael Kinsley on immigration:

Kidding Ourselves About Immigration, by Michael Kinsley, Commentary, Time: What you are supposed to say about immigration--what most of the presidential candidates say, what the radio talk jocks say--is that you are not against immigration. Not at all. You salute the hard work and noble aspirations of those who are lining up at American consulates around the world. But that is legal immigration. What you oppose is illegal immigration.

This formula is not very helpful. We all oppose breaking the law, or we ought to. Saying that you oppose illegal immigration is like saying you oppose illegal drug use or illegal speeding. Of course you do, or should. The question is whether you think the law draws the line in the right place. Should using marijuana be illegal? Should the speed limit be raised--or lowered? The fact that you believe in obeying the law reveals nothing about what you think the law ought to be, or why.

Another question: Why are you so upset about this particular form of lawbreaking? After all, there are lots of laws, not all of them enforced with vigor. The suspicion naturally arises that the illegality is not what bothers you. What bothers you is the immigration. ... So in the end, this is not really a debate about illegal immigration. This is a debate about immigration. ... [...more...]

Update: Andrew Samwick disagrees with Kinsley.

Obama Goes after Krugman

Krugman has clearly gotten to the Barack Obama campaign, to the point where they have released an attack on him to try to defend their (indefensible) position on health care mandates. This is based upon misinterpreting what Krugman said, then acting like there's a contradiction in his statements.

If this is how they are going to proceed, the name of this web page on the Obama campaign site should not be "Fact Check", "Fact Distortion" is more like it:

Fact Check: "I want to campaign the same way I govern, which is to respond directly and forcefully with the truth," ~ Barack Obama, 11/08/07

Fact Check: ''Krugman Didn't Always Think So Poorly Of Obama's Plan'' December 07, 2007

"Krugman Didn't Always Think So Poorly Of Obama's Plan." First Read reported, "No Democratic-leaning pundit, it seems, has been more passionate or serious on the need for health-care reform than the New York Times' Paul Krugman. As a result, people took notice when his column today blasted Obama's health-care plan, as well as the candidate's recent statements on it...But, channeling the Washington Post's Ruth Marcus, Krugman didn't always think so poorly of Obama's plan. Almost six months ago, in a June 4 column, he mostly praised it -- although he did criticize its lack of a mandate. The substance of Krugman's two columns is essentially the same. The tone, however, is not." [First Read, 11/30/07]

And why might the tone have changed? Could it be that the campaign has adopted right-wing talking points on health care and Social Security in between the two statements?

THE PLAN

KRUGMAN THEN: Obama's Health Care Plan "Is Smart And Serious, Put Together By People Who Know What They're Doing." Paul Krugman wrote, "The Obama plan is smart and serious, put together by people who know what they're doing...So there's a lot to commend the Obama plan." [New York Times, 6/4/07]

KRUGMAN NOW: "The Fundamental Weakness Of The Obama Plan Was Apparent From The Beginning." Paul Krugman wrote, "The fundamental weakness of the Obama plan was apparent from the beginning." [New York Times, 11/30/07]

This is misleading - Krugman noted the lack of a mandate in the plan from the very start as is noted in the quote above this one: "although he did criticize its lack of a mandate."

COURAGE AND TOUGHNESS VS. WEAKNESS AND CAUTION

KRUGMAN THEN: Obama's Plan Passes A "Basic Test of Courage" And Gets "Points For Toughness." Paul Krugman wrote, "It also passes one basic test of courage. You can't be serious about health care without proposing an injection of federal funds to help lower-income families pay for insurance, and that means advocating some kind of tax increase. Well, Mr. Obama is now on record calling for a partial rollback of the Bush tax cuts. Also, in the Obama plan, insurance companies won't be allowed to deny people coverage or charge them higher premiums based on their medical history. Again, points for toughness. Best of all, the Obama plan contains the same feature that makes the Edwards plan superior to, say, the Schwarzenegger proposal in California: it lets people choose between private plans and buying into a Medicare-type plan offered by the government." [New York Times, 6/4/07]

KRUGMAN NOW: "Obama's Caution...Led Him To Propose A Relatively Weak, Incomplete Health Care Plan." Paul Krugman wrote, "What seems to have happened is that Mr. Obama's caution, his reluctance to stake out a clearly partisan position, led him to propose a relatively weak, incomplete health care plan." [New York Times, 11/30/07]

Yes, once Obama decided to raise mandates as a campaign issue, and to criticize the Clinton and Edwards' plans on this basis, the tone changed and it became necessary to focus on the weakness of Obama's plan rather than the strength. But there's nothing new in Krugman's position, he has criticized this part of the plan from the start.

MANDATES AND ENFORCEMENT

KRUGMAN THEN: Krugman Talked To An Architect Of Obama's Plan Who Said "Obama Is Reluctant To Impose A Mandate That Might Not Be Enforceable." Paul Krugman wrote, "I asked David Cutler, a Harvard economist who helped put together the Obama plan, about this omission. His answer was that Mr. Obama is reluctant to impose a mandate that might not be enforceable, and that he hopes -- based, to be fair, on some estimates by Mr. Cutler and others -- that a combination of subsidies and outreach can get all but a tiny fraction of the population insured without a mandate." [New York Times, 6/4/07]

KRUGMAN NOW: "Most Troubling, Mr. Obama Accuses His Rivals Of Not Explaining How They Would Enforce Mandates" And Said He Was Implying That The Plans Would Require "Nasty, Punitive Enforcement." Paul Krugman wrote, "Third, and most troubling, Mr. Obama accuses his rivals of not explaining how they would enforce mandates, and suggests that the mandate would require some kind of nasty, punitive enforcement." [New York Times, 11/30/07]

KRUGMAN NOW: "Obama Is Storing Up Trouble For Health Reformers" By Criticizing Mandates. Paul Krugman wrote, "Finally, Mr. Obama is storing up trouble for health reformers by suggesting that there is something nasty about plans that 'force every American to buy health care.'" [New York Times, 12/7/07]

I don't see any contradiction in the last set of statements.

Here's what happened. When Obama's plan came out, it was praised by Paul Krugman, Ezra Klein, Jonathan Cohn, and others - it is a big step forward - but they all noted the lack of mandates. Many believed that he would eventually realize mandates were necessary, but in any case, they chose to praise the good parts of the plan while noting the bad parts such as the lack of mandates, and assumed much of that could be fixed later.

However, when Obama decided to go after the other candidates for imposing mandates, and claimed his plan was superior on this basis (and coming on top of his misguided position on Social Security), the rhetoric changed and the focus turned to this part of the plan. With the focus on mandates and his attack on other candidates, of course the tone changed - this is a weakness of his plan whether he sees it or not, at least that's the view of most experts - and to compare statements after his attack on other candidates to statements that came before doesn't tell us a whole lot about the "facts." I can't figure out what Obama's camp thinks they are accomplishing. [Update: Ezra Klein comments.]

Will the Real Darth Vader Please Stand Up...

Darth Vader and his evil twin:

Darth Vader blogging, by Paul Krugman: Back when Hillary Clinton described Dick Cheney as Darth Vader, a number of people pointed out that this was an unfair comparison. For example, Darth Vader once served in the military.

Here's another reason the comparison is invalid: the contractors Darth Vader hired to build the Death Star actually got the job done.

State Department project manager banished from Iraq by the U.S. ambassador and under scrutiny by the Justice Department continues to oversee the construction of the much-delayed new American embassy in Baghdad from nearby Kuwait, State Department officials disclosed Thursday.

James L. Golden, a contract employee, is still managing the $740 million project, said Undersecretary of State Patrick Kennedy, the department's top management official.

"Mr. Golden is still . . . our project manager, and still is working with the contractor, at their base in Kuwait," Kennedy said.

One State Department official with detailed knowledge of the unopened embassy expressed outrage that his superiors haven't replaced Golden.

Megan McArdle notes that the more evil of the two Darths would have succumbed to his heart condition long ago if he had health care like an ordinary human:

Feature, or bug?, by Megan McArdle: Apparently, the California Nurse's Association is preparing to run an ad in papers on Monday arguing that with average health care, Cheney would be dead:

Washington, DC –Print ads demanding health care reform will blanket Iowa newspapers on Monday Dec. 11. The California Nurses Association (CNA) / National Nurses Organizing Committee (NNOC) are running the ads as part of a national campaign pushing for guaranteed health care coverage for all Americans through a Medicare-based system.

The ad uses recent headlines about Vice-President Dick Cheney's heart procedure to point out the difference between the government-funded health care that the nation's leading politicians enjoy and the precarious health care situation in which most Americans find themselves.

A news article about Cheney's recent treatment for heartbeat irregularities provides the context with the headline: "If he were anyone else, he'd probably be dead by now." The text highlights that factors such as the patient's history and prognosis would likely lead to a denial of private insurance claims for most Americans, assuming that they had coverage in the first place.

Is this supposed to sell their plan to progressives?

Yeah, we think everyone, the good, the bad, the rich, the poor, those with genetic or acquired pre-existing conditions, even Cheney, is entitled to health care.

"Its not True"

I think this is a good sign. Do tax cuts pay for themselves?:

Washington Post: Mr. Giuliani and the Tax Fairy. Editorial "...It's not true..."

Time: Tax Cuts Don't Boost Revenues, by Justin Fox ..."these claims are false..."

Now, will the press make the connection between the willingness to make these claims and character? Those who say this are either making claims they know are false, or have economic advisors who don't know what they are talking about. In any case, whether its the willingness to mislead to promote an idea, or the incompetence in choosing advisors and the unwillingness to consider evidence at odds with their preconceived notions, it's worth noting. My own view is that their economic advisors know what the evidence really says, and the candidates are choosing to ignore what they are told. But a simple question, "Have your economic advisors informed you that there's no basis for that claim, and if so, why are you making it anyway" or something like that, would tell us the answer. It's not as though this is unimportant, the difference between the claim that the most recent tax cuts are self-financing and the actual evidence is hundreds of billions of dollars and it would seem that with so much at stake, we would hear more about those who mislead us about the true cost of the policies they advocate.

Update: I take back any praise of Justin Fox and Time, it's undeserved. Justin introduces his article on his blog by saying "Some tax cuts do raise revenues, of course."

Update: Here's the Boston Globe on John McCain:

Straight shooter, wacky tax idea "Alluring as such a theory may be, it's not true."

That's more like it.

Paul Krugman: The Mandate Muddle

Just say no to false Republican talking points:

The Mandate Muddle, by Paul Krugman, Commentary, NY Times: Imagine this: It's the summer of 2009, and President Barack Obama is about to unveil his plan for universal health care. But his health policy experts have ... concluded that the plan really needs to include a requirement that everyone have health insurance — a so-called mandate.

Without a mandate, they find, the plan will fall far short of universal coverage. Worse yet, ... health insurance will be much more expensive...

But Mr. Obama knows that if he tries to include a mandate in the plan, he'll face a barrage of misleading attacks from conservatives who oppose universal health care in any form. And he'll have trouble responding — because he made the very same misleading attacks ... during the race for the Democratic nomination.

O.K., before I go any further, let's be clear: there is a huge divide between Republicans and Democrats on health care, and the Obama plan — although weaker than the Edwards or Clinton plans — is very much on the Democratic side of that divide.

But lately Mr. Obama has been stressing his differences with his rivals by attacking their plans from the right — which means ... giving credence to false talking points that will be used against any Democratic health care plan a couple of years from now.

First is the claim that a mandate is unenforceable. Mr. Obama's advisers have seized on the widely cited statistic that 15 percent of drivers are uninsured, even though insurance is legally required.

But this statistic is known to be seriously overstated — and some states have managed to get the number ... down to as little as 2 percent. Besides, while ... enforcement ... isn't perfect, it does greatly increase the number of insured drivers.

Anyway, why talk about car insurance rather than looking at direct evidence on ... mandates...? Other countries — notably Switzerland and the Netherlands — already have such mandates. And guess what? They work.

The second false claim is that people won't be able to afford the insurance they're required to have... But all the Democratic plans include subsidies to lower-income families... In fact, the Edwards and Clinton plans contain more money for such subsidies than the Obama plan. ...

Finally, Mr. Obama is storing up trouble for health reformers by suggesting that there is something nasty about plans that "force every American to buy health care."

Look, the point of a mandate isn't to dictate how people should live their lives — it's to prevent some people from gaming the system. Under the Obama plan, healthy people could choose not to buy insurance, then sign up for it if they developed health problems later. This would lead to higher premiums for everyone else. It would reward the irresponsible, while punishing those who did the right thing and bought insurance while they were healthy. ...

So how much does all this matter?

Mr. Obama's health plan is weaker than those of his Democratic rivals, but it's infinitely superior to, say, what Rudy Giuliani has been proposing. My main concern right now is with Mr. Obama's rhetoric: by echoing the talking points of those who oppose any form of universal health care, he's making the task of any future president who tries to deliver universal care considerably more difficult.

I'd add, however, a further concern: the debate over mandates has reinforced the uncomfortable sense among some health reformers that Mr. Obama just isn't that serious about achieving universal care — that he introduced a plan because he had to, but that every time there's a hard choice to be made he comes down on the side of doing less.

"An Angry Face"

Turning to politics and foreign policy, here's something the Washington post let out a little early. From Sunday's paper:

Why So Angry, America?, by Richard L. Armitage and Joseph S. Nye Jr., Washington Post: The world is dissatisfied with American leadership. Shocked and frightened after 9/11, we put forward an angry face to the globe, not one that reflected the more traditional American values of hope and optimism, tolerance and opportunity.

This fearful approach has hurt the United States' ability to bring allies to its cause, but it is not too late to change. The nation should embrace a smarter strategy that blends our hard and soft power -- our ability to attract and persuade, as well as our ability to use economic and military might. ...

We -- one Republican, one Democrat -- have devoted our lives to promoting American preeminence as a force for good in the world. But the United States cannot stay on top without strong and willing allies and partners. Over the past six years, too many people have confused sharing the burden with relinquishing power. In fact, when we let others help, we are extending U.S. influence, not diminishing it.

Since 9/11, the war on terrorism has shaped this isolating outlook, becoming the central focus of U.S. engagement with the world. The threat from terrorists with global reach is likely to be with us for decades. But unless they have weapons of mass destruction, groups such as al-Qaeda pose no existential threat to the United States -- unlike our old foes Nazi Germany and the Soviet Union.

In fact, al-Qaeda and its ilk hope to defeat us by using our own strength against us. They hope we will blunder, overreact and turn world opinion against us. This is a deliberately set trap, and one whose grave strategic consequences extend far beyond the costs that this nation would suffer from any small-scale terrorist attack, no matter how individually tragic and collectively painful. We cannot ... remain stuck in a narrow post-9/11 mindset that alienates much of the world.

More broadly, ... we ... cannot lecture others about democracy while we back dictators. We cannot denounce torture and waterboarding in other countries and condone it at home. We cannot allow Cuba's Guantanamo Bay or Iraq's Abu Ghraib to become the symbols of American power.

The United States has long been the big kid on the block, and it will probably remain so for years to come. But its staying power has a great deal to do with whether it is perceived as a bully or a friend. ...

The past six years have demonstrated that hard power alone cannot secure the nation's long-term goals. ...

In a changing world, the United States should become a smarter power by once again investing in the global good -- by providing things that people and governments want but cannot attain without U.S. leadership. By complementing U.S. military and economic strength with greater investments in soft power, Washington can build the framework to tackle tough global challenges. We call this "smart power."

Smart power is not about getting the world to like us. It is about developing a strategy that balances our hard (coercive) power with our soft (attractive) power. ...

Leadership requires more than vision. It requires execution and accountability, two features in short supply in government today.

Throughout the Cold War, the United States projected an image of vast technical competence: We sent humans to the moon and helped eradicate smallpox. Later, the nation's military victories in Iraq in 1991 and Kosovo in 1999 demonstrated its towering technical proficiency. But today, the United States projects a very different image. The country's tragically inadequate response to Hurricane Katrina, difficulty in restoring basic services in Iraq and inability to address looming domestic issues such as health care, immigration and the cost of entitlements have made it appear that the country can no longer solve tough problems. Some people abroad have always questioned U.S. policy. Today, many are questioning our basic competence.

Smart power could start to change that, but it will not solve all of the nation's problems. Its lasting value is that it may help persuade others to join the U.S. cause. ...

links for 2007-12-07

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