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The future of cooperation — and economic growth: Exclusive interview with Alex Tabarrok

Posted by: Matthew Trost

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Alex Tabarrok is co-author of hit economics blog Marginal Revolution. At TED2009, he talked about how a lesson from 1929 teaches us that ideas trump economic crises. The TED Blog interviewed Tabarrok over the phone to find out what else makes him optimistic about the future of economic development:

What do you say to the argument that the Third World will not develop because we don’t have the natural resources to sustain the development?

I utterly reject the view that the Third World is doomed to poverty and starvation. Not only is this wrong, I think this attitude verges on the immoral, like thinking that slavery is an unalterable facet of the human condition so why bother doing anything about it? Moreover, thinking of this kind — I call it the Lebensraum point of view — leads to war and destruction. The Lebensraum point of view, however, is rejected by evidence from the second half of the twentieth century. Peace and free trade are the routes to wealth — not a grab for “limited” resources.

The term natural resources confuses people. “Natural resources” are not like a finite number of gifts under the Christmas tree. Nature is given but resources are created. Oil was around for millions of years before people realized it could power civilization. Who would have thought that an utterly common element like silicon would drive 21st century growth? Or that atoms could light homes? At any point in time, resources are limited but what counts as a resource changes over time. Perhaps in the future people will worry that we are running out of asteroids to mine! Of course, the ultimate “natural resource” is the power of the human mind, and more minds are going to come online in the 21st century than ever before.

None of this is to say that the environment and global climate change are not a huge concern. We need to adapt, use more sustainable sources of energy, and think for the long term to a greater extent than our species has done in the past. I worry that we will not do these things. But if we do accept and meet these challenges I have little doubt that world as a whole will be a better and a richer place.

In your talk, you called China “the world’s greatest anti-poverty program of the last few decades.” Could you elaborate on that?

With the death of Mao and the rise of Deng Xiao Ping, China began to grow at tremendous rates — 10 percent per year. Without any foreign aid to speak of, this “program” raised hundreds of millions of people out of the very worst kind of poverty. China in 1979 had among the highest poverty rates in the world. Its economic growth has brought several hundred million people from making less than a dollar a day out of that starvation-level poverty. Remember that, during the Great Leap Forward 30 to 40 million people starved in China.

TED is going to host a conference in India in November, so, in the same vein, could you talk about where India might be going?

India is a bit behind China, but in the 1990s they also freed up their economy, and they have unleashed an incredible amount of entrepreneurialism involving world trade. The India-China story is exciting, because India has a lot of advantages going for it — English speaking being one. China’s trying to catch up on that score. Whether India can overcome some of its bureaucracy will be interesting to see. Also, the role of democracy is fascinating.

A lot of people say that India has been held back by its democracy. But let’s remember that despite being a poor country India’s democracy meant that its government never let millions of people starve. No politician wants to starve potential voters. In the long run, I think India is going to benefit from its democracy and not be harmed by it. Democracy is, in a sense, like markets. It provides information and feedback, it leads to a more open system and it constrains government from the worst kinds of abuses. I think that the more China proceeds along the wealth path, the more difficult they will find it not to have a democracy.

Why is there so much fear about the rise of nations like China?

Under Communism, China and the Soviet Union — with their nuclear weapons and their anti-trade, anti-Western ideology — certainly were threats. But with their integration into the world economy as trade has increased, that threat has declined.

Cordell Hull, U.S. Secretary of State under Franklin Delano Roosevelt, is said to have remarked, “When goods don’t cross borders, armies will.” Free trade unites the world and reduces the threats from other nations. It doesn’t eliminate it, but we have much less to fear from a rich, prosperous China than we do from a poor, starving China.

Clay Shirky talks about a thing that he calls a “cognitive surplus” — the idea that as we work less, we can spend our mental energy on other things. And in the past 50 years, we’ve spent lots of that surplus watching TV. What do you think about that?

Julian Simon said that our ultimate resource is the power of the human mind. And I think that’s true. As fewer people work as coal miners or farmers, more time is freed for thinking. In Africa, China and India today, I guarantee there are millions of people working on the farms who could be scientists and engineers — if the world were richer.

As we get richer, we do spend more time in leisure. But I think television’s pretty good. (Laughs) I like television; I like The Sopranos, I like The Wire, I loved the first season of Veronica Mars. Television is much more complex, brain-challenging and involved than it used to be. It’s almost impossible to watch a television show from 15 years ago; it’s just too boring. I think modern television shows, with their intricate plots, are stimulating our minds. This is one reason IQs have been going up.

READ MORE: Alex Tabarrok talks television, drug decriminalization, bounty hunters … Interview with Alex Tabarrok (continued):

You attribute that to television?

Well, (Laughs) … I think there’s cause and effect there. People get used to more complex forms of entertainment, and they become bored by simpler forms. Television has become more complex in order to feed our demand. But there’s probably also an effect where we become better able to parse complicated plotlines, the more we see them.

I take nothing for granted in today’s entertainment marketplace.

Perhaps like the simple food movement there will be a simple television movement. (Laughs)

Let’s talk The Wire, then — so long as we’re talking about complicated plotlines.

I love The Wire. I thought the series of episodes on drug decriminalization were fantastic, both in showing that, yes, decriminalization can reduce violence, but also that it is not a panacea and people aren’t going to give up drugs. There’s going to be a seedy side to drug markets. It also showed that we may not be ready for decriminalization. The politicians had to shut it down because they feared the voters, the backlash.

I thought it was a very realistic portrayal of how drug legalization could be successful on many fronts, but it would not be politically tenable … yet.

So … you say “yet.”

(Laughs) I think the change that we’ve had in marijuana laws is tremendous, and now, under the Obama administration, it looks like we’re not going to prosecute people in California who are selling medical marijuana legally. It’s been an absolute, disgusting tragedy how people doing completely legal things in California have been thrown in federal prison for the rest of their lives. I think that’s a terrible situation.

I’m also upset because I believe in Federalism. I believe in trying many things. Democracy is an experimental system. I like it when states try out new ideas. I think we ought to expand not contract our federalist system.

What’s your take on this clamor for decriminalization of marijuana that’s happening on the Internet, directed at Obama? Should those of us in favor be optimistic?

Yes, I think so. At least our past two Presidents have experimented with drugs — (Laughs) — or, our past three. It didn’t stop them from being elected, so …

Overall, the signs are quite good that we’re heading towards a more rational drug policy. But I do not expect legalization or decriminalization under Obama. He has enough on his plate and he’s not going to spend his political capital on that issue. But there may be more progress on the state level.

In his talk that posted on Friday, Nate Silver said urban planning might have a positive effect on racial understanding. Is there a sense in which economics is all about how these small choices are having an impact on a big scale?

Economics shows the unintended consequences of human action. Looking at neighborhood design, one of the famous early experiments was by Thomas Shelling. He pointed out that if people have a slight preference — they’re not racist, but they don’t want to be in a neighborhood where the people surrounding them are overwhelmingly another color, either black or white. Even if they have a slight preference, like that, you get massive racial segregation. People making small, slight choices can add up to something nobody really wants.

We see the same problem with global warming and the tragedy of the commons with the tuna stock. The fisherman hunting the tuna, none of them want to destroy the fishery, but they’re in a situation where if they don’t catch that fish, somebody else will. Their incentives are pushing them in a direction in which nobody wants to go. Understanding these tragedies of the commons situations can help us to avoid them.

Once you’re in such a tragedy of the commons-type situation, how do you get yourself out?

It’s not easy. New Zealand has been quite successful at creating property rights in fish. That is, if you’re a fisherman, you get an assigned quota: you’re only allowed to fish so much. When this is enforced, everybody can be better off. Almost paradoxically, limiting how much each fisherman can catch can means that every fisherman catches more, because they allow the fish stock to grow.

It can be done, but it takes a lot of political will, especially when the problems are global, because then you need agreement of a bunch of different nations, and that’s hard to get.

So, let’s tie everything together and revisit the candle metaphor you used in your talk. At least in the world the media shows me, it doesn’t seem like there’s really a lot of “cooperation” happening … but it seems you’re arguing that things are getting much better, as a whole.

Economics does open your eyes to the fact that there is a massive amount of cooperation in the world. If you walk into a supermarket, you see grapes from Chile, apricots from Turkey, dates from India. All of these people from around the world — these farmers in India producing the dates for your consumption, for example — don’t know who you are, they don’t know where their dates are going, they might not even like you if they met you. (Laughs) Nevertheless, they are working for your benefit.

The 19th century economist Bastiat said, “It’s a miracle that Paris is fed, and yet every day Paris is fed.” The trucks arrive on time, the food is delivered. It’s an incredible amount of cooperation involving millions of people. Economics open your eyes to the big picture which can sometimes be overshadowed by these other events like wars and revolutions — which are actually not the big story.

Let’s talk about one of your main research interests: crime. In one of your papers, you discuss how a terror alerts for the Washington D.C. Mall match a decrease in crime.

A big issue in crime research is, “Are police effective?” Many sociologists and criminologists have argued that crime is a function of poverty, race and social conditions, and that policing doesn’t do much to prevent crime. Indeed, if you look at a simple statistics, you find that, lo and behold, places with a lot of crime also have a lot of police. So do police cause crime? (Laughs) The reason is places with a lot of crime hire a lot of police. But this makes it difficult to figure out if police actually reduce crime.

We want to look for a time and place where we have a natural experiment where, for some reason, we get a lot more police on the street for random reasons. This is where the terror alert level comes in.

Most of the time the warning level is yellow. Sometimes it goes to orange. When it goes to orange, the police in Washington D.C. put more police on the street. Of course, they’re naturally concerned about terror alerts, especially in D.C. So when that terror alert goes to orange, we suddenly see more police on the street — especially in the National Mall area.

My colleague John Klick and I look what happens to crime when the terror alert level goes up. We do get a sudden decrease in crime. Crime goes down by a lot — especially street crimes, like automobile theft.

Our results suggest that the United States could do quite well with more police. We probably have enough prisons — especially if we take some of the drug offenders out. But police have a high benefit-cost ratio.

In one paper you compared the effectiveness of public and private police forces — or the value of bounty hunters. Talk a little about that.

When an accused criminal is brought before a judge, the judge will sometimes release them on their own recognizance, and sometimes on bail. Typically an accused criminal will borrow most of the money for bail from a bail bondsman. If the criminal fails to show up, the bondsman is out the money, so the bondsman has a big incentive to ensure that these people show up for their trials. If they fail to show, he has a big incentive to track them down, which is where bounty hunters — or “bail enforcement agents,” as they like to be called (Laughs) — come in.

A colleague and I looked at similar accused criminals released on different types of bail: public bail, own recognizance, commercial bail. We found that people released on commercial bail were more likely to show up, and if they did fail to appear, they were caught much quicker, and they were at large for a shorter amount of time. The bounty hunter system really does work.

Are you suggesting a policy change of some sort?

This bail enforcement system has been used in the United States for 200 years. It has come under pressure in recent decades, and some people are trying to get rid of it. I certainly think, before we get rid of it, we ought to understand its benefits, and how it works.

A few states such as Illinois have outlawed commercial bail, and I think because of that they have fewer people showing up for trial and they have more criminals on the loose. In California, there are something like two million unserved arrest warrants, including thousands for homicide. These are cases where a person accused of homicide doesn’t show up for trial, and there’s basically nobody going after them, unless they were out on commercial bail.

The police are just not going after these people in numbers, and that’s a problem.

Finally, talk a bit about the public perception of economics — how it’s changing, and where blogging, such as your site, MarginalRevolution.com, comes in.

Economics has become a lot more exciting and interesting in recent years. I just sent one of my students to the University of Chicago and she’s now interviewing prostitutes for work with Steve Levitt. Another blogger, Chris Blattman, does work with child soldiers in Uganda, and the other half of the time he’s running regressions and doing statistical analysis! One of my colleagues, Kevin McCabe, puts people in MRI’s and does neuro-economics. Just the number of things economists do has increased tremendously. They’re doing development work, history, psychology, criminology .. they’re involved in all kinds of areas.

Blogs have helped spread the word about the kinds of things going on in the field.

Credit: TED.com