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UP Links 15 November 2012

+ Brandon Fuller

UP Non-Resident Scholar Matt Kahn on California’s New Cap & Trade Program

Matthew E. Kahn, an economist at the University of California, Los Angeles, says he’s optimistic that California’s cap-and-trade experiment is worth doing — most significantly as a model for other states, the federal government, and other nations.

“I am a believer that … if California succeeds with this initiative, it could be a building block toward national legislation,” Kahn said during an October 29 webinar for journalists… The globe’s major economies will be paying attention to how California’s new carbon market progresses, Kahn added. “The rest of the world will be learning,” he said. “China will be watching us, South America will be watching us, and if we have success in California … and by success I mean the goldilocks effect of having economic growth and environmental progress, then this will create a domino effect.”

Matt Yglesias: America Needs Skyscrapers in Washington, D.C.

The main issue is that DC area real estate is one of the primary “inputs” to the federal government. If housing in the DC area became cheaper, then in effect real compensation of DC-area federal employees would rise (allowing the government to attract better workers) at no cost to the taxpayer. Similarly, the federal government would just straightforwardly save money if it didn’t need to pay such high rents for office space. And as well as being the most expensive office market in America, DC also has one of the most expensive hotel markets in the country which raises the cost of doing routine federal business which often requires federal workers based elsewhere to travel to agency headquarters’ in the DC region.

The Economist on the Benefits of Freer Global Migration

In bad economic times the temptation to bash immigration is overwhelming. “Get the stench out of Greece,” runs a slogan of Golden Dawn, an increasingly popular anti-immigrant party there. David Cameron has pledged to more than halve annual net migration into Britain by 2015. In America Republicans are wondering how much anti-immigration rhetoric contributed to Mitt Romney’s defeat in the presidential election. A change of political tune is badly needed. Evidence suggests that increased flows of people across borders could ignite global growth.

Paul Romer on Rebalancing in China

“It’s not so much that the Chinese are investing too much and need to consume more,” he said in an interview. “They aren’t balancing investment between physical capital and human capital” – using the term economists use when they talk about educating citizens…

In his paper for the five-year plan, Mr. Romer focused heavily on the need for China to revamp its education system if it wants to get ahead. “The single strongest argument to emerge from the aggregate analysis of recent growth is that China should be investing more in human capital, especially if it is targeted toward young people who are likely to achieve low levels of education under the current patterns of spending,” he wrote.

Daniel Altman: Can Korea Avoid Some of Japan’s Economic Missteps?

Japan has made a halfhearted effort to find a new path by embracing free markets, dismantling the corporate behemoths known as keiretsu, cracking down on corruption, and even teaching its young people the value of competition. Ultimately, however, Japan has failed to become a global hub for entrepreneurship — an essential driver of post-convergence growth. With a rapidly aging population that will soon begin to shrink, the prospects for further expansion in the Japanese economy are less than sunny.

Korea is next in line to face these challenges. Like Japan’s economy and the keiretsu, Korea’s economy is dominated by a handful of chaebol – enormous conglomerates that cover many industries (excluding banks) and whose share of GDP, after climbing steadily for the past 10 years, may be higher than 75 percent. At the very moment that Korea needs dynamic small and medium-sized businesses to flourish, the private sector as a whole is becoming more dominated by lumbering oligopolies.

Ronald Coase and Ning Wang: How China Became Capitalist

A key empirical finding of our book is that there are actually two Chinese reforms. One was dictated by Beijing. The other resulted from grassroots initiatives. Starving peasants started private farming and township and village enterprises; city residents without a job in the state sector set up the first private businesses in Chinese cities; Shenzhen and other Special Economic Zones were set up as an experiment to co-opt capitalism to save socialism. They all operated outside the protected boundary of socialism.

During the first decade of reform, “marginal revolutions” introduced entrepreneurship and market forces back to the Chinese economy, while the state-led reform was desperately trying to improve the state-owned enterprises and save socialism. In this sense, China became capitalist with marginal revolutions.

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