The economics and political economy of Gazan smuggling tunnels

I've written a lot in the past about the smuggling tunnels between Egypt and the Gaza Strip, but the London Review of Books has what has got to be the best article I've ever seen. As the article says, data's hard to find, but the anecdotes are pretty good. Here's an excerpt:

According to World Bank officials, 80 per cent of Gaza’s imports currently come through the tunnels. Once black-market smuggling had turned into Gaza’s formal trade, Hamas inspectors began to impose controls and licensing fees. Some tunnel merchants now operate a telephone order service and send out catalogues: office equipment ordered by phone arrives in 48 hours. ‘Goods move faster now than when Rafah terminal was open,’ a businessman told me. With the rise in trade, prices have fallen. Egyptian goods cost less than Israel’s, sometimes even after Hamas and the smugglers have taken their cut. Petrol is half its pre-siege price.

There are precious few macroeconomic data on the effect all this is having. ‘For us Gaza’s a bit of a black hole,’ a World Bank economist reliant on Ramallah’s figures admits. Even so, he says, unemployment rates in May dropped 3 per cent from a high of 32 per cent. ‘My tiler’s gone underground,’ a UN civil servant complained to me: he couldn’t compete with the tunnel smugglers, who pay four times the £12 daily wage he was offering.

More tangible signs of recovery can be seen among Gaza’s numerous money-changers, who help smugglers launder their earnings. The weight of a million dollars in hundred dollar bills to the nearest decimal point trips off their tongues. In June, the Gaza-based Bank of Palestine doubled the size of its trading rooms, which are linked electronically to Nablus, Cairo and Dubai stock markets, and installed rows of plasma screens. With investors keen to park their profits, share-trading volumes doubled in a year, and this summer the Bank of Palestine share price reached an all-time high. Traders who used to go home at lunchtime now stay till four.

Is Russia liberalizing its economy?

The Russian government has recently announced that a new round of privatizations of state firms will occur next year, and Stratfor seems to think that this is a potentially monumental step for the Russian state. According to Stratfor (the first two parts of a five-part series have already been published),* this is the beginning of a sort of "clan war" within the Kremlin.

Stratfor frames it as roughly being between the old siloviki and the new "civilviki." On the side of the old (lead by Igor Sechin) is the FSB and the state-owned giant Rosneft, and on the "civilviki" side (led by Vladislav Surkov) is President Medvedev, liberal reformer Finance Minister Alexei Kudrin, the GRU, Gazprom, and Chechen President Ramzan Kadyrov.

Anyway, Surkov and his clan are being given an opportunity to shake things up with their liberalization plan. Putin isn't taking any sides, and is waiting for it to play out before siding with the victor. Definitely not a textbook case of good vs. evil, but all in all, I think we should be rooting for Surkov and his clan.

* Stratfor is a private intelligence agency with a subscription-only site, but if you search the title of the article in Google and click the link from the search results page, you can access anything you want. This trick also works with the Wall Street Journal.

Aspirin and the 1918 flu

The New York Times has an interesting article on a new paper that claims that some of the 50 million deaths worldwide attributed to the 1918 Spanish Flu pandemic may have actually been caused by aspirin overdoses, a common (but sometimes deadly) treatment at the time. But this passage stood out to me:

Aspirin packages were produced containing no warnings about toxicity and few instructions about use. In the fall of 1918, facing a widespread deadly disease with no known cure, the surgeon general and the United States Navy recommended aspirin as a symptomatic treatment, and the military bought large quantities of the drug.

I'll bet a lot of the New York Times' readers read that paragraph and come away thinking, "Thank god we have a government agency to make sure there are warnings on medicines." But personally, it was the second sentence that struck me – maybe if the government hadn't been in the business of giving out health advice, the use of high doses of aspirin in 1918 wouldn't have been so widespread.

Russian natural gas market = capitalism?

In an article about natural gas pipelines to Europe, the New York Times makes the egregious error of implying that Russia's natural gas industry is anything other than an arm of the Russian government:

It is a free-market capitalism that post-Communist Russia has cannily exploited, says Pierre Noël, a professor at Cambridge University and a fellow at the European Council on Foreign Relations.

“It is an open, competitive, capitalist economy,” he said. “People build the pipes they want to build.”

With his Nobel, Obama will slay the communists and the godless

Here's Thorbjørn Jagland, head of the committee that issued the award, comparing what Obama's about to do to the fall of the Berlin wall, which liberated (to various extents) the 300 million people of the Eastern Bloc:

He compared the selection of Mr. Obama with the award in 1971 to the then West German Chancellor Willy Brandt for his “Ostpolitik” policy of reconciliation with communist eastern Europe.

“Brandt hadn’t achieved much when he got the prize, but a process had started that ended with the fall of the Berlin Wall,” Mr. Jagland said.

Not to be outdone, Shimon Peres comes dangerously close to calling Obama the messiah:

[A]nother laureate, President Shimon Peres of Israel, sent a letter to President Obama on Friday morning, saying: “Very few leaders if at all were able to change the mood of the entire world in such a short while with such a profound impact. You provided the entire humanity with fresh hope, with intellectual determination, and a feeling that there is a lord in heaven and believers on earth.”

FTC sees into the future, corrects problem

The FTC is imposing rules on internet publishers (bloggers, tweeters, etc.) for the first time, in terms of disclosure and some other things. But just in case you thought that this new spate of regulation was in response to an actual problem, the FTC wants to disabuse you of that notion:

Richard Cleland, assistant director of the division of advertising practices at the F.T.C., said: “We were looking and seeing the significance of social media marketing in the 21st century and we thought it was time to explain the principles of transparency and truth in advertising and apply them to social media marketing. Which isn’t to say that we saw a huge problem out there that was imperative to address.”

Oops! – Afghanistan's VP is a drug lord and we knew it all along

The NYT on Marshal Muhammad Qasim Fahim, former secretary of defense and potential new vice president:

But by 2002, C.I.A. intelligence reports flowing into the Bush administration included evidence that Marshal Fahim was involved in Afghanistan’s lucrative drug trade, according to officials discussing the reports and the internal debate for the first time.

He had a history of narcotics trafficking before the invasion, the C.I.A. reports showed. But what was most alarming in the reports were allegations that he was still involved after regaining power and becoming defense minister. He now had a Soviet-made cargo plane at his disposal that was making flights north to transport heroin through Russia, returning laden with cash, the reports said, according to American officials who read them. Aides in the Defense Ministry were also said to be involved. [...]

Some United States officials in Washington and Kabul argued that there was no smoking gun proving his involvement in narcotics trafficking, and thus no need to break off contact with him. And eventually, the Bush administration hit on what officials thought was a solution: American military trainers would be directed to deal only with subordinates to Marshal Fahim, and not Marshal Fahim himself.

That would at least give the Bush administration the appearance of complying with the law.

Interestingly, there was a period when it seems that Karzai kicked Fahim out of the most obvious positions of power, which the NYT writer seems to think was to win an ethnic bloc in the coming election:

By late 2003, officials said, the Bush administration began to realize its mistake, and initiated what officials called its “warlord strategy” to try to ease key warlords out of power. Marshal Fahim remained defense minister until 2004 and was briefly Mr. Karzai’s running mate as vice president in elections that year, but Mr. Karzai then dropped him.

Marshal Fahim remains a powerful figure among Tajiks, the ethnic group in north Afghanistan, and Mr. Karzai, a Pashtun from the south, calculated that an alliance with the general would help him increase his support in northern Afghanistan.

Why (many) development economists don't know shit

For any of you economics-of-development buffs out there, here is a scathing academic critique (pdf unfortunately) of the widely-read Doing Business reports issued by the World Bank. The report's subtitle says "measuring business regulations," but givers of development aid (including the US and EU) often use it as a proxy for general liberalization, and make it a condition for countries to receive aid. Academics are also enamored with the reports, and many a complex econometric regression has relied on its data.

The problem is that the data don't capture the reality on the ground very well. I'm not really in the mood to summarize the paper, but a major issue is ex ante vs. ex post costs – that is, whether ease-of-registration in the beginning is gained at the expense of a lot of hassle later when disputes have to be adjudicated. Doing Business measures the fixed costs, but neglects the later costs that are incurred if a business has to prove things that in a system weighted towards ex post costs would already have been taken care of. The author's point isn't that a system of ex ante costs is necessarily better, but just that the World Bank doesn't take the later costs into account at all.

Remittances up in these hard times

Two remittances-related blog posts popped up on my feed reader today. The first, from International Political Economy Zone, is about how, despite economists' expectations, remittances in the Philippines are still increasing. This post, from the World Bank's Private Sector Development blog, discusses how the World Bank and the Economist believe that immigrants are engaging in currency speculation on the margin – the strengthening of first-world currencies compared to developing countries' currencies is causing immigrants to send more money home, since they know their families will get more local currency for their dollars/euros/pounds.

The overall remittance picture according to a World Bank report (.pdf) is that remittances to Latin America (presumably mostly from the US and Spain) are mostly down, whereas they are still growing in countries in South and Southeast Asia, albeit at slower rates. That is, with the exception of Pakistan, whose growth rate in remittances is actually up so far for 2009. The Philippines' growth rate in remittances slowed from 14% from 2007-08 to 3% so far in 2009 – obviously lower because of the economic slowdown in the US, with its 4 million Filipino immigrants, but perhaps mitigated due to the fact that demand for healthcare, where many Filipinos in America work, has been more robust than the demand for construction, where many Mexicans work[ed]. The growth in the rate of growth of remittances to Pakistan baffles me though – I'd suspect that most overseas Pakistanis worked in the Gulf and the UK, which haven't exactly been thriving as of late. Perhaps the growth is driven by Pakistanis in India? Is there even significant immigration from Pakistan to India?

Does the average American smoke pot at least once a week?

I don't know if I've ever seen any estimates of how much marijuana is consumed annually within the US, but this number hints at it:

Since the beginning of 2007, the report states, Mexican security forces have seized about 65 tons of cocaine and more than 9.3 million pounds of marijuana.

Assuming all the weed was destined for the US, that means that about 7.5 grams of weed were inderdicted for every man, woman, and child. A rough estimate – the marijuana was likely consumed in Mexico and Canada as well as the US, but then again both Canada and the US have non-trivial amounts of domestic production. This amount of weed is a bit more than the street equivalent of a "quarter" (aka, a quarter of an ounce), and is roughly enough weed to get one person high about 15-40 times, depending on quality and tolerance. I would be very surprised if even half of all marijuana produced was seized before it reached smokers – I would put the number at about one-quarter, which would mean that the average American gets high at least once or twice a week. But this seems a bit unrealistic...did I mess up the math, or are my suppositions incorrect? Or do Americans just smoke a lot more weed than we realize?