Progress Daily

Daniel Esty analyzed the Environmental Sustainability Index, which grades the “environmental health” of 150 countries. He found that the single biggest variable in determining a country’s ranking is income per head.

Economic growth offers solutions to the sorts of environmental woes (local air pollution, for example) that directly kill humans. About a quarter of all deaths in the world have some link to environmental factors. Among these killers (especially of children) are diarrhoea, respiratory infections and malaria.

As poor countries get richer, they usually invest heavily in environmental improvements, such as cleaning up water supplies and improving sanitation, that boost human health. (Their economies may also shift gear, from making steel or chemicals to turning out computer chips.)

But the link between growth and environment is much less clear when it comes to the sort of pollution that fouls up nature (such as acid rain, which poisons lakes and forests) as opposed to directly killing human beings.

A mixture of factors related to good government -— accurate data, transparent administration, lack of corruption, checks and balances — all show a clear statistical relationship with environmental performance. Among countries of comparable income, tough regulations and, above all, enforcement are the key factors in keeping things green.

“How green is their growth,” The Economist

In China 25 years ago, over 600m people — two-thirds of the population — were living in extreme poverty (on $1 a day or less). Now, the number on $1 a day is below 180m. Worldwide, 135m people escaped dire poverty between 1999 and 2004. This is more people, more quickly than at any other time in history.

In 2007 Unicef said that for the first time in modern history fewer than 10m children were dying each year before the age of five. That represents a fall of a quarter since 1990. Three-quarters of people aged 15-25 were literate in 1975; now the rate is nearly nine-tenths.

The fertility rate in low- and middle-income countries has crashed. In East Asia and the Pacific, the rate was 5.4 in 1970. Now it is 2.1. In South Asia, the fertility rate halved (from 6.0 to 3.1). In the world as a whole, fertility has fallen from 4.8 to 2.6 in a generation (25 years).

The biggest decline is in those countries that are most involved with globalization (especially in East Asia, though China is a special case because of its one-child policy). With the exception of Yemen, all the countries with fertility rates over 5.0 are in Africa.

In closed agrarian societies, families need a lot of children as insurance against disaster. But in countries that have opened themselves up, families can rely on other sorts of protection, such as urban jobs or trade.

These demographic changes help to create a virtuous circle of growth. When fertility rises then falls, you get a bulge of people at and just after the inflection point. Between 1960 and 1990 Europe and America had relatively few old people (because mortality rates had earlier been high), relatively few children (because fertility had fallen) and a disproportionately big number of economically active adults.

Developing countries are seeing a similar confluence now.

A World Bank study of 19 poor countries concluded that every 1% increase in national income per head translates into a 1.3 point fall in extreme poverty.

Last year the global economy entered its fifth year of over 4% annual growth — the longest period of such strong expansion since the early 1970s. Unlike previous expansions, inflation remained relatively tame.

During this boom, according to the World Bank, national income in the European Union rose slightly more than in America for the first time in a decade. Growth in East Asia was 10%, in South Asia over 8%, in eastern Europe almost 7% and in Africa, thanks to the commodity boom, over 6%. Almost half of humanity, spread over more than 40 nations, lives in countries growing at 7% a year or more (a rate that doubles the size of an economy in a decade). This is twice the number of fast growers that existed in the years between 1980 and 2000.

The world’s economic balance is tilting from rich industrialized countries to emerging markets. Their share of world output in 2006 was just below half, and rising.

Since the mid-1990s, the incomes of the poorest fifth have risen everywhere except, marginally, in Latin America, where they have been affected by the after-shocks of debt crises. In Asia, the real incomes of the poorest fifth rose 4% a year; in Africa, by 2% a year, faster than the rise for other income groups.

The World Bank labels as “fragile” (as opposed to “failed”) troubled countries where the government has partial control of territory (Sudan), where it cannot deliver basic services (Zimbabwe) and places with high levels of political conflict (Nigeria).

Fragile states contain roughly half the developing world’s childhood deaths. About a third of their people are undernourished and more than that do not have access to drinking water. Most of the countries with fertility rates over 5.0 are fragile. They are much more likely to be affected by wars, refugees and every sort of political crisis.

“Somewhere over the rainbow,” The Economist

The cost of developing drugs for rare and common diseases are about the same, but the revenues aren’t. Pharmaceutical companies concentrate on drugs with larger markets because larger markets mean more profits.

As a result, patients diagnosed with rare diseases — those ranked at the bottom quarter in terms of how frequently they are diagnosed — are 45% more likely to die before age 55 than are patients diagnosed with more common diseases.

If China and India were as wealthy as the U.S., the market for cancer drugs would be 8 times larger than it is today.

Cancer is now China’s leading killer, with spending on treatment increasing by 17% per year. AstraZeneca and Novartis are building major research facilities in China, which will benefit patients everywhere.

There are only about 6M scientists and engineers in the entire world, nearly a quarter of whom are in the U.S. If the world as a whole were as wealthy as the U.S. and were devoting the same share of population to research and development, there would be more than 5 times as many scientists and engineers worldwide.

Even small changes in economic growth rates produce large benefits. At current income levels, with an inflation-adjusted growth rate of 3% per year, America’s real per capita gross domestic product would exceed $1 million per year in just over 100 years, more than 22 times higher than it is today.

“Dismal Science Sees Upbeat Future,” Alexander Tabarrok

A political prediction market is a bit like the stock market, except that you are buying shares whose value depends on the success of a political candidate, rather than the profits earned by a corporation.

Experimental prediction markets were established at the University of Iowa in 1988, and they have since repeatedly outperformed polls. (See “Results from a Dozen Years of Election Futures Markets Research.”) Economic historians have also documented the impressive forecasting record of prediction markets in the period before scientific polling was adopted. (See “Historical Presidential Betting Markets.”)

In the 2004 primaries, prediction markets pointed to the disintegration of Howard Dean’s candidacy in advance of the fateful Iowa caucuses. In the 2004 presidential election, the market favorite won the Electoral College in all 50 states; in 2006 the markets also picked every Senate race.

Prediction markets have long suggested a strong showing for Hillary Clinton, even as popular commentators had earlier dismissed her as unelectable, much as they did prior to her successful New York senate race in 2000.

Prediction markets tend to be forward-looking, while polls are often backward-looking. For instance, Fred Thompson continues to do well in national polls largely due to name recognition, while prediction markets have discounted this advantage, understanding that candidates like Mike Huckabee will become better known through the campaign. Indeed the markets currently believe that Mr. Thompson is less likely to win the Republican nomination than fringe candidate Ron Paul.

The markets predicted Mike Huckabee’s surge a few weeks before the polls.

On the Democratic side, national polls suggest a landslide for Ms. Clinton, while the markets suggest a one-in-three chance that Obama or Edwards will ultimately win the nomination.

“Best Bet for Next President: Prediction Markets,” by Justin Wolfers

The ultimatum game brings out conflicting impulses: a researcher offers two players a set amount of money and explains that if they agree on how to divvy it up they will keep that money for themselves. If they don’t, neither will get anything. One player then offers the other a split. Most players reject a patently unfair division — such as offering only $4 out of a total of $20. Yet, self interest would argue that even $4 is better than nothing, which is what will otherwise result.

Daria Knoch and economist Ernst Fehr studied 52 young men in the ultimatum game. The researchers specified the amounts that could be offered - ranging from four to 10 Swiss francs out of 20 - and had computers randomly select some of the offers. This helped distinguish between the recipients demand for reciprocity - only applicable when another human being is in control - and a general resistance to unfair offers. The scientists divided the recipients into 3 groups: those who would receive transcranial magnetic stimulation (TMS) to suppress electrical activity in the right side of their prefrontal cortices, those who would receive the treatment on the left side and, as controls, those who would receive no stimulation.

45% of the men who experienced TMS on the right side of their prefrontal cortex accepted the most unfair offers - a split of 16 to 4 - compared with just 15% of those whose left side had been stimulated and 9% of the controls. 37% of those who underwent right side stimulation accepted all unfair offers - judged as any split less than 10 to 10 - whereas no one was so accepting in the other groups. And they made the decision to accept an unfair offer as quickly as a fair one, while their colleagues needed much longer to decide. This marks the first time that brain researchers have controlled a specific behavior by using TMS on a specific region of the brain. It takes at least 15 minutes of direct application to the skull to induce the changes, and they only last a short while.

“Selfish Impulse Set Free by Magnetic Pulse to Brain,” by David Biello

According to the ILO’s Key Indicators of the Labour Market, agriculture has recently lost its place as the main sector of world employment and has been replaced by the services sector.

Agriculture is still the main sector of employment in the world’s poorest regions, comprising 2/3rds of workers in sub-Saharan Africa and almost 1/2 of workers in South Asia and South-East Asia & the Pacific.

Modernization of large economies is largely bypassing industrialization and going straight to the service sectors - in the western economies the service sector was about 2/3rds of the economy, and has grown further (to 71%). Worldwide, in 1996 agriculture employed 42%, industry 21%, and services 37%. In 2006, the numbers are 36%, 22%, and 42%.

“For the first time in 10,000 years, farming is not the dominating industry“

Wage gaps between rich and poor nations are huge. A migrant from Guatemala to the US increases her income by a factor of 6 (PPP adjusted). From Kenya to the UK is a factor of 7; from Vietnam to Japan, a factor of 9.

A century ago, factors of 3 were sufficient to spark the migration that helped build America and partially empty Ireland, Italy and Poland.

Book review. No, not THAT book,” Ethan Zuckerman’s review of Lant Pritchett’s Let Their People Come

Since the origins of agriculture about 11,000 years ago, the story of food has also been one of globalisation.

The opening of the Silk Road in the first century BC meant that knowledge of winemaking passed eastwards from the Middle East to China, while the idea of noodles moved in the opposite direction. The “Columbian exchange” of foodstuffs between the Old and New Worlds was second in importance in food history only to the adoption of agriculture.

New foods are generally regarded with suspicion, as potatoes were in 18th-century Europe and genetically modified crops are by many people in the 21st.

But we are living at the end of food history. Spices that once commanded exorbitant prices can now be found in the supermarket. Tomatoes and maize from the New World were unknown to the Romans but are now central to Italian cuisine. India is now the biggest producer of peanuts, a South American crop. China is the largest producer of wheat, a Middle Eastern crop, and of potatoes, originally from South America. Brazil dominates the production of coffee, originally from Ethiopia, and of sugar, originally from New Guinea.

“History on a Plate,” The Economist

Economists have long argued that international trade can be beneficial for both trading partners.

Part of the reason for the relative success of protectionist arguments has to do with evolution. We have certain tendencies and beliefs that may have been useful in evolutionary times, but they are now counterproductive. This evolved belief easily translates into a fear of loss of jobs.

The human evolutionary environment was approximately “zero sum” — resources and incomes were fixed, and more for one person meant less for another.

If Mexicans are finding jobs in the United States, then it “must” be that American citizens are finding fewer jobs because, in a zero sum world, the number of jobs is fixed. Similarly, if we are importing goods from China, or outsourcing tasks to India, then the Americans who would otherwise make those goods or perform those tasks must be losing jobs.

Among hunter-gatherers, rates of homicide and deaths from inter-band conflict were much higher than in modern times. This high level of conflict has led to strong, evolved, in-group and out-group preferences.

Those individuals who lose from international competition can harness innate beliefs to create obstacles to competition, such as by keeping out products made by foreigners (in the case of tariffs) or keeping out the foreigners themselves (in the case of immigration). Anti-foreigner arguments resonate because they fit into evolved mental compartments.

Understanding economics is like reading, which must be taught, not like speech, which we acquire naturally with no instruction.

“‘Folk’ international economics,” by Paul H. Rubin

YouNotSneaky! points out (”How much of a jerk do you have to be to oppose immigration?“) that a low-skilled worker can make $9.34 an hour in America, compared with just $2.56 in Mexico. He assumes that migrants depress the wages of low-skilled Americans by 5% — a widely cited estimate. To justify opposing immigration, the blog concludes, you must attach at least 20 times more weight to the well being of a native-born American than to a Mexican.

Gordon Hanson points out (”The Economic Logic of Illegal Immigration” — .pdf file here) that since 1960 the share of native-born workers with less than a high-school diploma has fallen from 50% to 12%. Some 24% of farm workers, 17% of cleaners and 14% of construction workers are illegal aliens.

A study in the 1990s showed that a 10% drop in Mexican pay relative to US wages prompted a 6% increase in attempts to cross the border. Recently, a slowdown in remittances to Mexico and other Central American countries suggests the housing bust, and home-building slump, may have reduced the pace of illegal immigration.

“Guests v gatecrashers,” The Economist