By Jonathan B. Wight

While tourism and mining are both on the rise in Portugal—boosting the economy—there is still a sense of malaise as the country continues to lose population.  Every building at street level is tagged with graffiti, and owners seemed disinclined to do much about it. If they did paint over, how long would it take before a repeat offense? 

Despite this, one thing that strikes any visitor immediately is how safe Portugal feels. We have been renting an apartment in one of the poorer neighborhoods of Lisbon (Alfama), historically an Arab or Moorish sector, but today filled with immigrants from Asia, Africa, and Latin America—plus a lot of tourists! (See photo.)

Regardless of the neighborhood or the city, one feels safe, and the data bear this out. The murder rate is 0.6 per 100,000 people, compared to 3.0 for Europe as a whole and 5.4 for the United States. That’s an enormous difference—you are 9 times more likely to die violently in the rich U.S. than in this much poorer country.

I’m not sure about the reasons for this. One factor could be the social safety net (even though it’s stretched thin by austerity measures). Another could be the legalization in 2001 of marijuana, cocaine, heroin, and LSD for personal consumption. 

I have seen some poverty, and some begging, but nothing like the panhandling in my hometown of Richmond, Virginia.  This is despite a poverty rate in Portugal of a whopping 17%, which amounts to several million adults, and perhaps a half million children.  

Inequality is considered high by European standards, but is low compared to the U.S. The Gini coefficient is .33 in Portugal, and has been trending downward for the past decade (1=complete inequality, 0=no inequality).  The U.S. Gini is .41 and trending higher.

With the influx of tourism and retirees here, gentrification is a huge issue for the poor and middle class dwellers in trendy neighborhoods like ours.

Another feature of this economy, unsurprisingly, is the relatively low price of services, and the high price of goods. The low price of services is understandable, given the high unemployment and low wages. 

The relatively high price of goods may be due to the VAT (23%), or to the tiny retail establishments that seem to abound in our neighborhood with no economies of scale and presumably high transport and handling costs. Gas costs the equivalent of $5.70 per gallon, and trucks are scaled down in size to maneuver through the narrow, winding streets.  Our friends who live here drive once a month to a large grocery store to stock up.  That is not available for many residents who live in tiny apartments with tiny fridges and little freezer or storage space, and don't have a car to begin with.

Prices in Portugal are lower outside of the metropolis (https://www.numbeo.com/cost-of-living/country_result.jsp?country=Portugal).

By Jonathan B. Wight

The blog has been quiet for a while as I’ve sopped up “green wine” with codfish in Lisbon and other haunts. The joy of sabbatical is getting outside one’s comfort zone.  Indeed, the main defense of international trade and travel, as noted by John Stuart Mill, is that it enlivens and widens our view of fellow men and women.

In Coimbra, yesterday, one of the oldest university towns in Europe, our apartment overlooked some of the riotous student fraternities. Black-caped students swirled about, joyous about something. The prestigious University of Coimbra was founded in 1290 and has been in continuous operation since, although with discombobulations.  It is considered the Oxford or Cambridge of Portugal.

The highlight of the campus tour (listed as a UNESCO World Heritage site) is the Joanine Library, dating from the early 18^th century. It is the most stunning room I have ever been in. Words cannot convey the richness of the atmosphere of gorgeous oak wooden book shelves rising up to the heavens. Photos are not allowed within the room, but from the outside, there is a huge keyhole that one can peer through (see photo).  The richly ornate building does not feel oppressive like many such gilded rooms.

Most importantly, it contains 60,000 books that date from the early Scientific Revolution and Enlightenment. What a statement of values to build such a library to celebrate the frontiers of knowledge in that era. Bats are maintained within the structure to feed at night on insects that otherwise would munch on the paper. (Low tech solution to a problem.)

By Jonathan B. Wight

Richard Vedder, emeritus professor of economics at Ohio State, is writing a book on declining productivity in American universities.  A précis was printed in the Wall Street Journal as “College Wouldn’t Cost So Much If Students and Faculty Worked Harder.”

It’s hard to argue with the main points, namely that, compared to 50 years ago:

• Students study fewer hours;
• Students get higher grades after learning less;
• Faculty teach fewer hours;
• Faculty publish more papers that are read by fewer people;
• Administrators have come to outnumber teaching faculty.

This is truly a mess.  The ethics of it arises because of misaligned incentives, as Adam Smith wrote about in castigating his own teachers at Oxford.  

In modern America, administrators want to get donations and accreditation.  Accreditation bodies want to justify themselves by pretending they are ratcheting up quality. Faculty quality is mistakenly often construed to mean more publications.  And so on…. [Let’s not even talk about athletics.]

The situation is somewhat worse than Vedder portrays, because the rise of administrators is highly correlated with the rise of meetings and paperwork. While faculty are teaching less, they are caught up in more rigmarole of governance, tenure, promotion, and other time-sapping (but highly important) activities. 

But why pick on colleges?  Exactly the same facts probably pertain to high schools.  When my father graduated high school in 1932, he wrote beautifully using Shakespearean metaphors and knew world history. 

My only pushback to Vedder is that he assumes that the only reason to do research is to create knowledge that will be recognized by others as advancements in thinking. This is a worthy but elusive goal; most researchers, even at prestigious universities, will never publish anything that will be read by future scholars.

A more pragmatic reason for encouraging and rewarding faculty engagement with research is that it keeps a teacher from going stale. A faculty member, through stretching oneself and subjecting oneself to a research review process, must necessarily command more control of the classroom.  At least that has been my experience.  This is not a defense against Vedder’s general critique, only a qualification.

[Thanks to Bacon's Rebellion (https://www.baconsrebellion.com) for the link!]

Julian Baggini has a good tribute to David Hume that appeared in Aeon.  

This was an interesting and provocative quote:

"The best human beings have not been driven by ideology, moral philosophy, and certainly not logic. They have always been people who have put the response to human need above creed or doctrine. Indeed, the worst crimes have been committed by people convinced of a justifying moral principle."

Perhaps.  But there are plenty of other heinous crimes committed for no moral principle at all.  

By Jonathan B. Wight

Computer programmers have a daunting task.  One is to figure out what to say when things go wrong.

Yesterday I was interacting on-line with a vital government agency that has been severely underfunded (in my opinion) by the current administration.  That probably had nothing to do with what I’m reporting below, but perhaps it does. 

After a half hour of dutifully filling in forms, with multiple steps and screens along the way, the program informed me that I was almost done!  Just one more screen to finish!

I clicked on “Finish” … and the dreaded Error message appeared:

“An exception occurred while processing your request. Additionally, another exception occurred while executing the custom error page for the first exception. The request has been terminated.”

Does anyone have any idea what this means?  I’m sure the coders were well intentioned, but this message was not compatible with user friendliness or user low blood pressure!  I had to start over.  

By Jonathan B. Wight

I’ve been thoroughly enjoying John Steinbeck’s account of his journey in the early 1940s to the waters of Baja, Mexico, where he was helping a biologist friend gather samples of the diverse ocean life.  The book is The Log from the Sea of Cortez (1941).

There is lots of philosophy here as well as some science, and lots of funny stories told with dry humor. Steinbeck reveals a wonderful distinction between U.S.-style corruption and Mexican-style corruption. Mexico has a cash bribe system and the U.S. a credit bribe system.  Steinbeck (tongue-in-cheek) prefers the Mexican cash system for its greater economic efficiency, and ultimately, its psychological effects: 

“We have thought of this in regard to the bribes one sometimes given to Mexican officials. This is universally condemned by Americans, and yet it is a simple, easy process. A bargain is struck, a price named, the money paid, a graceful complements change, a service performed, and it is over. He is not your man nor you his….

“We find we like this cash and carry bribery as contrasted with our own system of credits. With us, no bargain is struck, no price named, nothing is clear. We go to a friend who knows the judge. The friend goes to the judge. The judge knows a senator who has the ear of the awarder of contracts. And eventually we sell five carloads of lumber. But the process has only begun. Every member of the chain is tied to every other.  Ten years later the son of the order of contracts must be appointed to Annapolis. The Senator must have traffic tickets fixed formany years to come. The judge has a political lien on your friend, And your friend taxes you indefinitely with friends who need jobs. It would be simpler and cheaper to go to the order of contracts, give him one-quarter of the price of the lumber, and get it over with. But that is dishonest, that is a bribe. Everyone in the credit chain eventually hates and fears everyone else. What the bride-bargain, having no enforcing mechanism, promotes mutual respect and a genuine liking” (p. 82).

This is a clear demonstration of the double coincidence of wants problem in economics, when comparing barter to a cash economy.  

Despite the allure of Mexico's more efficient bribe system, I still prefer a just system that arises from people following fair laws, and civil servants who are virtuous enough to enforce them without prejudice.  Obviously, if laws are unfair, or civil servants are corrupt, then a cash bribe system would have a lot more going for it. 

By Jonathan B. Wight

A friend reports an experience with a pre-K class in an inner city school.  The teacher asked kids to use crayons to draw their own faces.  Out of twelve kids, not one appeared interested in finding a brown crayon that came close to the shade of his or her own skin color. 

When given a choice, many kids wanted to draw themselves as purple or blue! Reality to them at this age is more complex than we acknowledge.   

By Jonathan B. Wight

It is a no-brainer that business people don’t really like competitive market capitalism, despite all their exhortations about the value of markets.  Just read any of The Wealth of Nations to find Adam Smith with the same view.  Business people much prefer rigged markets, as long as they are on the inside. 

So it is no surprise that new research finds that converting health care insurance from non-profit to for-profit leads to a rise in premiums (not the fall that would be anticipated because of greater market efficiencies). 

Leemore Dafney reports on this in “Does It Matter if Your Health Insurer Is For Profit? Effects of Ownership on Premiums, Insurance Coverage, and Medical Spending,” in the latest edition of the American Economic Journal: Economic Policy (2019, 11(1): 222–265): 

“I find both the BCBS affiliate and its rivals increased premiums following conversions in markets where the converting affiliate had substantial market share….The results suggest for-profit insurers are likelier than not for- profit insurers to exercise market power when they possess it.”

Next time someone says that markets are a solution that will bring down prices in privatized sectors, remember that context matters.  Context, context, context. 

By Jonathan B. Wight

Thank goodness it’s over, at least for three weeks. We should never have had it.

Asking workers to work for “free” is a form of slavery.

• You can counter by saying federal workers should know the deal by now, and have willingly signed on knowing the risks of a shutdown.
• You can counter by saying federal workers will eventually be paid; a shutdown cannot last forever.

But many federal workers may not have a large cash cushion, and will have to take out loans or carry higher credit card debt. Those fees and penalties for late payments will not be reimbursed.  That is a hidden tax on federal workers.

Federal contractors will lose untold millions in lost wages and profits that will not be compensated. 

The bottom line is that in the future the federal government will have a harder time recruiting and retraining high quality individuals at a reasonable wage. 

We should recall that the professional civil service system (of desirable jobs and desirable wages) was set up to counter the corrupt system that preceded it. If you want widespread government corruption (try Zimbabwe, try Brazil, try China) pay your government employees bad wages or expose them to high hidden costs or risks. 

One of Trump’s longest legacies will be to promote the exodus of talented and motivated civil servants from government, to the detriment of public ethics.  (Yes, most civil servants, including economists who work in Treasury, Commerce, or other agencies are generally ethically minded!)

Federal contractors will have to factor in the greater risk of a shutdown in making their bids on government projects—thereby raising the costs to taxpayers of carrying out public works.

Stiffing workers and contractors is not the way to run a business or a government.

By Jonathan B. Wight

A friend recently inquired about Adam Smith’s view on externalities. A much longer post is needed to break apart several important ideas.  First, one would need to disentangle the invisible hand concept from market “efficiency.” (See J. Wight, The Treatment of Smith’s Invisible Hand, The Journal of Economic Education 38(3)(2007): 341-358.)

Second, while Smith does not discuss (to my awareness) externalities arising from environmental pollution, he did write that private market transactions could pollute or corrupt one’s mind. Here are two examples, one negative and one positive.

Negative externalities:  When market forces lead to an extreme form of labor specialization, people become “stupid and ignorant” and this mental weakening has a deleterious effect on civil society.  This is why Smith proposes publicly-funded education as a remedy: 

“The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social, and martial virtues. But in every improved and civilised society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.” (Wealth of Nations)

This is pretty clear evidence that in Smith’s mind private market transactions can produce deleterious effects for third parties, and that there is a role for government in remedying the situation. 

Positive externalities: In The Theory of Moral Sentiments, Smith claims that people make fundamental misjudgments about means and ends (he is a precursor to behavioral economics).  In the story of the poor man’s son, we learn that extreme striving and ambition never produce the expected happiness or peace of mind—it is all a psychological “deception.”  The beneficiaries of this striving accrue to others, namely society at large—through greater wealth and innovation. 

“And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth.” (The Theory of Moral Sentiments). 

No doubt there are other examples of Smith’s awareness of third party effects.  See, for example, this blog about relative standing. 

[Thanks to Rob Garnett for raising the question.]