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Arabic Knowledge@Wharton: An Arab Spring Economics Recipe: Add High Food Prices to Trade Barriers, Get Revolutions

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This article originally appeared in Arabic Knowledge@Wharton

Tyler Cowen, an economics professor at George Mason University, has recently published a book called An Economist Gets Lunch: New Rules for Everyday Foodies about how you can apply basic theories of economics to get the best meal for your money.

On a serious note, he tells Arabic Knowledge@Wharton, most people don’t realize there is not a shortage of food, but rather too many poor people unable to pay for it. Cowen also discusses how food prices and trade barriers in the Middle East helped drive the Arab revolutions.

An edited transcript of the conversation follows:

Arabic Knowledge@Wharton: You state that food is a result of capitalist supply and demand. It seems logical and simple, but people don’t think about food in those terms. How did you come up with that?

Cowen: I grew up as a kid reading classical economic works by Adam Smith, David Ricardo and James Mill. Those are the origins of economics, as we all know. For obvious reasons, they’re obsessed with food. That’s almost all they write about because that’s what the economy was about back then. If you have a background in classical economics, the notion that economics is about food comes very naturally. Maybe the world has forgotten that somewhat.

Arabic Knowledge@Wharton: In the Middle East, eating a more Westernized diet is a sign of worldliness but it may not be as healthy as eating traditional meals. How did the idea of local eating transform into a lower-status symbol?

Cowen: There’s a class division in a lot of those societies. You either do things that are Western to show you have money, but it’s not necessarily healthy. I think if they became a little more obsessed with, say Indian or Chinese food, they’ll do better. There are issues with diabetes and obesity in many of these wealthier Gulf nations. They also tend not to be physically active because that also has a stigma. So it’s one thing to eat if you’re physically active, you can get away with doing so much more.

Also, they have servants, and they import labor. A lot of people are just not working; they don’t have to work. That’s a lethal combination. And the idea of, “Oh, I’m going to go to the gym,” like they say in America, it’s not the same there. It’s too much like work.

Arabic Knowledge@Wharton: You point out that there is no shortage of food in the world. But there is a shortage of money for poor people to buy the food. It seems almost ironic. What are the factors that affect this polar phenomenon?

Cowen: If you look at wheat and rice, there have been price spikes over the last five years and they’ve made food a lot harder for poor people to afford. The so-called “Green Revolution” has somewhat slowed down. This is an unreported story. Crop yields are stagnant. It isn’t a problem we can solve overnight but it’s really one of the biggest problems in the world. It hardly gets any publicity. But for poor people in India, the Middle East and parts of Africa, it really matters.

Some of the problems are we don’t have enough trade. It could be either legal barriers or just costly to transport or trade things. If there could be a shortage of rice in one place, it actually not that easy to ship a lot of rice in there because of bad roads and so on.

Arabic Knowledge@Wharton: So if countries worked on improving the transportation infrastructure, that would lower food prices in some parts of the world?

Cowen: Exactly, that would do a lot to feed people. Again, it sounds much more mundane but it’s more important than what people in the food world usually talk about.

Arabic Knowledge@Wharton: So when companies like Wal-Mart bring their logistics ability to Africa, it actually could be a good thing for the poor people of Africa?

Cowen: It’s exactly what we need more of. Yes.

Arabic Knowledge@Wharton: Yet there’s a fear Wal-Mart will put the smaller stores out of business.

Cowen: Yes, they do so sometimes, but they do so by charging lower prices. It makes it more accessible and more reliable. It’s not just the pricing at any one point and time. It’s what happens in the very worst periods. Companies like Wal-Mart are very, very good at keeping up supply and being regular.

Arabic Knowledge@Wharton: Are there other things that people can do to feed the poor people in the Middle East, especially in the Arab nations that have undergone revolutions?

Cowen: Well, they have very bad economic policies; it’s hard to know where to start. They tend to have bad energy and bad water policies. They overuse energy and they overuse water and protect their domestic farmers. It creates an unholy triad of subsidies with water, food and energy in a way that’s environmentally unsustainable. They should rely more on free trade. They tend not to trust it and I understand why, given their histories. But what they’re doing now isn’t really working.

Arabic Knowledge@Wharton: Do you think people recognize that when they’re forming the new governments?

Cowen: I think very often they do. There are a lot of sophisticated people in the governments. But that doesn’t mean they have the power to set things straight.

Plus, it depends on which country in the Middle East you’re talking about. So Tunisia is better run than most places. Lebanon has a saner agricultural policy than most places. Yemen is a total disaster. Algeria and Egypt have not gone so well. So there’s a lot of variety within the Middle East. If you think of a model like Turkey, which isn’t technically in the Middle East, they’ve liberalized and encouraged agribusiness. Turks are much better fed than 20 years ago. When you ask a country like Iran, what should we do? It’s hard to know even where to start.

Arabic Knowledge@Wharton: As you said, Egypt hasn’t gone well. And Egypt is in the beginnings of forming a new government, it sounds like they have a very big uphill battle.

Cowen: Yes, I think it’ll get worse before it gets better. They’re prevailing on economic policy based on mercantilism — powerful, bad, old-fashioned mercantilism in the greediest way. It doesn’t work. Mercantilism backed by military rule not a good idea.

Arabic Knowledge@Wharton: You point out that the Middle East imports about half of the wheat they use, which is needed for bread and other staples. This system of importing a food staple contributes to high food prices, which is one of the reasons for the political unrest and an impetus for the Arab revolutions. What can the Middle East do to reverse this trend?

Cowen: Well, it’s not just up to the Middle East. One reason that wheat prices and other prices have gone up is because the world as a whole has slacked off in research and development in agricultural productivity. I don’t think the Middle East can solve that problem on its own.

Arabic Knowledge@Wharton: Why has the world slacked off in such research and development?

Cowen: I don’t know. It’s a bigger public policy question. In a lot of areas, we’re spending more on short-term consumption and less on long-term investment. And I think that’s our fault. It’s a general trend and you see it in a lot of different countries.

Somehow, our time horizons are shortening. But most Middle Eastern countries do not have free trade in food. And if they did have free trade in food and didn’t protect their domestic farmers with subsidies, they would have cheaper food. So they treat their domestic farmers as a lobby that should be catered to when they should not. I wouldn’t suggest that would solve all their food problems. It wouldn’t.

Arabic Knowledge@Wharton: The domestic farmers would argue they would be put out of business.

Cowen: Sure, but should Saudi Arabia be growing bananas and paying for all that water in the desert? It’s crazy. There’s a long history in many of these countries, trying to be self-sufficient with fairly outrageous water and farm subsidies, which raises prices. It costs a lot of money in the budget. It’s not really a successful path forward but it does buy the support of some interest groups of course. That’s why they do it.

But the notion of saying something simple like “Well, Lebanon has more water than we do so we should just stop subsidizing water and buy it from them.” Those countries would be much better off.

Arabic Knowledge@Wharton: So if some of these countries just traded across borders?

Cowen: Yes. I don’t mean to get into politics but Israel has the highest agricultural productivity in the Middle East. And they use technology much better. But a lot of countries are very reluctant to trade with Israel. Even share information and have any dealings at all. That’s another mistake they make and that’s part of the problem.

Arabic Knowledge@Wharton: While water is scarce in some regional countries, like Yemen, it’s actually abundant in Syria, Lebanon and Turkey. Can you explain more about the water inequality problem in the Middle East?

Cowen: Typically, the Gulf has the worst problem with water. I’m not even sure Yemen is even a viable country because there’s some chance, they will literally run out of water in the next 20 years in a lot of parts of the country. At this point, I don’t know what they can do. Saudi Arabia is a lot wealthier and they’ve returned to some sanity. Every now and then, the price of oil dips and they decide they can’t afford to be as they used to be, so they cut back on their subsidies for the better. They ought to just say their domestic farmers have to pay the market price for their water. And if they can’t produce food at that price, we’ll buy from Lebanon, Turkey, Israel or wherever else.

Arabic Knowledge@Wharton: So to buy water and food products from other nations?

Cowen: Often how you buy water is to buy it in the product. If you buy a tomato, one way to think of that transaction is you are buying water. It’s called virtual water, so yes.

Arabic Knowledge@Wharton: In India, the economy is growing at 8 to 9% but agriculture is growing at 3% because agribusiness is not allowed. Can you explain the problem and discuss some of the solutions required?

Cowen: India has slowed down since the book came out. India is now at the 6% range. They have a climate that’s very hostile to agribusiness. They don’t want to let in Wal-Mart. They don’t let in generally consolidated land holdings. Agriculturally, they’re one of the least efficient countries. Half of the children under five are malnourished. And half of the workforce is in agriculture.

Arabic Knowledge@Wharton: Why doesn’t India let agribusiness grow?

Cowen: They protect their own small farmers. The result of that is massive malnutrition, which have terrible consequences, not just for the kids, but for the whole country. People grow up and have inferior opportunities. One thing the world does know how to do, even in non-ideal countries, is to raise agricultural productivity. Turkey has done it. Most of South America has done it. But India has not been willing to take that step. It’s a huge, huge problem for them. Millions of people suffer in a very serious way.

Arabic Knowledge@Wharton: Can you explain how the European fear for GMO’s (genetically modified organisms) is affecting Africa’s agricultural economy?

Cowen: There are a few reasons African countries are reluctant to use GMOs. Some of them do, mostly South Africa. But partly they don’t have the infrastructure to do it at all. And some are afraid that if they do, they can’t export to the European Union, which is their main market and more important than the United States. So they’ve held back on investing.

African agriculture has a lot of problems. But the biggest problem is simpler than GMOs. Africa has terrible roads. In Africa, it takes four to six time times to transport a product, which is crazy. It’s such a poor place. It’s relatively dry so they really need fertilizer. And to think an African farmer has to pay four to six times more than what an African farmer has to pay for fertilizer? A lot of that is because they have bad roads.

But not doing GMOs is part of a bigger, broader set of problems and it could make their agriculture more productive. I’m not sure injecting GMOs and doing nothing else will make a huge difference. If there’s no road to bring your crop to market, it doesn’t matter what you do to your crop. But it’s part of a series of big, interrelated problems.

Arabic Knowledge@Wharton: This fear of GMOs is more of a European fear than an American fear?

Cowen: Yes, that’s right. There’s a very small minority of Americans who worry about this kind of thing. In terms of law and public policy debate, it’s pretty much taken for granted. People have been eating GMO products for 20 years and there’s really no evidence of ill effects. Why is it this way in Europe? I don’t know. To me, it’s a bit like the right wing, climate change, etc. People start obsessing over it in a bad way and they’re not willing to face up to the evidence.

Arabic Knowledge@Wharton: In your book you point out New Zealand lamb. Its two biggest consumers are the U.S. and the Arab World. If segments of the U.S. population decided to boycott New Zealand lamb due to transportation not being environmentally friendly, how would that effect prices in the Arab World?

Cowen: In that example, I just tried to point out that boycotts are often not very effective. They make people feel good. If you get a lot of people to boycott, people somewhere else will just buy more of it. There’s a system-wide effect. In general, I tend to be skeptical of boycotts as a way to change the world. Sometimes they work but more often than not, they don’t.


Bloomberg Businessweek: The Kingdom of Howevers

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This article originally appeared in Bloomberg Business Week

Doesn’t this all mean that Netherlands, Finland, and Slovakia are getting somewhat rolled? They feel less responsible for the rest of the euro zone than Germany does.

How senior will the debt be from this new package? That seems like the key question to me. Very senior debt will kill the Spanish bond yields, but very junior debt will make this pure aid. How many euro zone countries are up for supporting pure aid on this scale?

—Tyler Cowen, “Quick Spain Thoughts,” Marginal Revolution, June 9, 2012, 3:12 p.m.

What a weekend.

See “The Twitter Vigilantes” on how the new normal in information flow has destroyed political and financial process.

As I tried on Saturday to discern (guess?) the next ten days, there was terrific analysis and insight (thanks,@lindayueh).

Tyler Cowen was early, smart, and dead-on. I urge you to read his brief essay. Project Syndicate has a prescient Michael Spence on unexpected outcomes. See Taleb on “interlocking fragility,” page 225, The Black Swan.

So if the ESM (European Stability Mechanism) is critical, and it is, I had to go to the source.

The EFSF (European Financial Stability Facility) 25-page love note (PDF) is wonderfully clear and direct. It starts out with appropriate delicacy (Luxembourgish law), with bailout free language as Greece, Ireland, and Portugal are guilty of “stepping out.”

It reads like a divorce agreement.

Item C7, page 6, contains this gem: “EFSF does not intend to use derivatives for the time being.”

Most of the following 19 pages then describe the mother of all derivative instruments.

Item D6, page 7: “The request for and control of this instrument needs to be ‘lighter’ than in the case of a regular macroeconomic adjustment programme …”

I believe this suggests, “We are not like the Americans.”

It then gets … worse.

The General Questions section then vaults to a set of “therefores,” “unlikelys,” and “howevers” leading to the crescendo of “in the unlikely event it is needed” in the vicinity of the ending ESM discussion.

The Kingdom of Spain is saving face this weekend. Stop. This crisis, this weekend, this June introduces us to the Kingdom of Howevers. Discuss.

The Washington Monthly: Highlights from Tyler Cowen’s An Economist Gets Lunch

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This article originally appeared in The Washington Monthly.

I just finished, and enjoyed, Tyler Cowen’s An Economist Gets Lunch. It’s chock full of fun guidance for anyone with an adventurous spirit seeking better food. Below are my highlights, which I made on my Kindle version as I read it. All are direct quotes, and they’re representative of the book’s style, though certainly not an exhaustive reflection of its scope and content. That it’s a fun read should be clear from the quotes, though the wisdom of some may not be. That’s what the rest of the book is for, and I don’t want to spoil it.

  • American has been about perfecting diversity and choice, rather than about perfecting any single style.
  • Avoid dishes that are ingredients-intensive. [America]
  • Go for dishes that are composition-intensive. [America]
  • Order the ugly and order the unknown.
  • If you are stuck in midtown, and you want good, cheap ethnic food, try the streets before the avenues. [Manhattan]
  • The best strip malls, for food, are usually those without Wal-Mart, Best Buy, or other big-box stores. [America]
  • The next food revolution in the United States is likely to be a mobile one and it will be advertised on Google and Twitter, not through fancy commercials during Super Bowl Sunday.
  • Google “Washington best cauliflower dish” even if you don’t want cauliflower. Get away from Google for the masses.
  • It is often best when the people in a restaurant look a little serious or even downright grim.
  • Eat barbecue in towns of less than 50,000 people.
  • The key point of Vietnamese dining is to use the sauces and condiments.
  • Hip people do not always have superb taste in food.
  • The two worst signs for Thai restaurants are Thai restaurants with large bars and lots of drinks and also Thai restaurants that serve sushi.
  • Eat at a Thai restaurant that is attached to a motel.
  • Eat some sardines at home and save up your cash for an occasional splurge on better Japanese food.
  • Pakistani food in the United States is better than Indian food in the United States.
  • Sometimes the easiest way to trade water is inside a tomato.
  • The environmental impact of food comes from its production, not its transportation.
  • Every time you substitute some canned sardines for junk food, just about everyone is better off.
  • Food is a product of economic supply and demand, so try to figure out where the supplies are fresh, the suppliers are creative, and the demanders are informed.
  • The best French food in the world today is served in Japan.
  • Unless you are spending a log of money, Paris is the worst place to eat in all of France.
  • Everything in Switzerland is good. Everything in Switzerland is expensive.
  • If you can’t name a famous landmark in an Italian city, it is likely to have superb food at an affordable price.
  • Go to Sicily and stay as long as you can. And eat.

Getting a Good Meal in D.C. Requires Some Ruthless Economics

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This article originally appeared in The Washington Post

It’s lunchtime in downtown Washington. How do you know where to go for a delicious meal at a fair price? Or better yet, how to avoid a bad one? An economist can help.

The city’s dining scene still falls short of the quality of Chicago or San Francisco, much less New York or Los Angeles. Nonetheless, it is possible to eat very well here, provided that one understands where the quality is distributed. As a longtime economist who has written ablog and a book on the economics of food, I have been studying and indeed living the economics of our local dining scene for more than two decades.

The key is to understand the culinary problems, and then figure out how to work around them. Let’s focus on the workaday crowd’s options downtown, which I will define as most of Northwest but not the top parts of Wisconsin or Connecticut.

First, much of downtown has an underdeveloped public street life. Washington empties out by early evening. It is easy to live in the Maryland or Virginia suburbs, which drains the city of potential energy, and this afflicts the daytime hours, too. Even U Street and Adams Morgan are lackluster by the standards of major global cities.

Second, a lot of Washington doesn’t have a very good public school system. Education-conscious Asian immigrants usually prefer the suburbs and that means D.C. proper doesn’t have a lot of first-rate Asian food.

Finally, the highest-status people in town — the politicians — usually have, or at least feel inclined to demonstrate, remarkably conservative taste in food (President Obama has been a welcome exception). Finance professionals in New York and entertainment moguls in L.A. set a flashier and more innovative tone for their favored dining-out places.

Washington does have its strengths. Namely, the city has a lot of high-income, highly educated transients. It attracts visitors, tourists, young interns and other workers who do a brief spell here but have no intention of staying. Because they come from all over, transients support food variety.

Yet transients also encourage restaurants that build up their reputations rapidly to appeal to a busy, underinformed and sometimes underseasoned audience. Those same restaurants also tend to fall in quality relatively rapidly; even when they don’t go outright bad, they usually descend into the realm of the ordinary.

Be the early bird

The key is to hit these restaurants in the “sweet spot” of their cycle of rise and fall. At any point in time Washington probably has five to 10 excellent restaurants; they just don’t last very long at their highest levels of quality.

Here’s how it works. A new chef opens a place or a well-known chef comes to town and starts up a branch. Good reviews are essential to get the place off the ground, and so they pull out all stops to make the opening three months, or six months, special. And it works. In today’s world of food blogs, Twitter and texting, the word gets out quickly.

Which restaurants have held this crown? A partial recent list would include The Source,Zengo, Sei, Palena, Oyamel, Hook, Equinox and Central Michel Richard, among many others. They all had their moments of glory.

Which places are peaking right now? I would nominate Little Serow and Rasika West. I have been seeing the right kind of stellar reviews for Mintwood Place (I have yet to visit). I had an excellent meal at Fiola a few months ago, but I’ve already heard reports of quality decline. I’ll continue to monitor the situation.

Avoid the beautiful people

Through information technology, we have speeded up the cycle of the rise and fall of a restaurant. Once these places become popular, their obsession with quality slacks off. They become socializing scenes, the bars fill up with beautiful women (which attracts male diners uncritically), and they become established as business and power broker spots. Their audiences become automatic. The transients of Washington hear about where their friends are going, but they are less likely to know about the hidden gem patronized by the guy who has been hanging around for 23 years, and that in turn means those gems are less likely to exist in the first place.

Most of these places remain above average in food quality, but they stay pricey or become even pricier. They are not incredible bargains, and they lose the edge and novelty and obsession with quality that defined their early days.

So here’s the key to eating well downtown: Find places in their golden opening, three- to six-month periods, noting that the first few weeks may involve working out some kinks in the kitchen. Figure most of these places will not stay excellent for more than a year. Go to the ones you like, as often as you can.

Leave when the magic is gone

And here is the clincher: Once you have one “pretty good but no longer special” experience at a relatively new restaurant, stop going.

Forever.

Weep but don’t look back, unless you hear consistent reports that it was truly an aberration. Most likely the magic is gone. Look around for the next excellent place because I promise you there will be one. Cultivate culinary disloyalty in yourself. That is more valuable advice — for Washington at least — than any restaurant recommendation I might send your way.

That may sound ruthless, but the odds are in your favor. We humans have what behavioral economists call a “status quo bias” for sticking with what we know and love. That bias makes sense when it comes to how we treat our friends and family, but it is a mistake to apply it to restaurants. The restaurant, of course, does not have the same loyalty to you.

If it makes you feel better, think of it this way: If more diners behaved in the manner I am suggesting, restaurants would have to keep their standards higher for a much longer period of time.

Don’t ignore the old standards

New York, Chicago and San Francisco are all more likely than Washington to have consistent, excellent restaurants that appeal to a solid, long-standing base of regulars; think Union Square Café in Manhattan. That said, the phenomenon of excess trendiness is spreading to restaurant markets across the nation, and in this regard you can think of Washington as a rather unfortunate forerunner of broader national trends.

Counterintuitively to many foodies, some of the better expensive meals downtown can be found at the old standards, such as The Palm or Prime Rib; they rely on regulars rather than on trendiness. Those restaurants are for my taste not as good as the top trending places. The menus at these establishments are for many diners less interesting and the prices are quite high. Still, if a meal were gifted to me, I probably would enjoy it more at either of those spots than at the average, watered-down trendy Washington place. You can do worse than to be treated to Morton’s, even if you’re not keen on steak.

Often knowing how to order is as important as choosing the restaurant.

●If you are in an ethnic restaurant, look around to see what the other diners have chosen.

●When speaking to the waiter and asking for advice, signal your knowledge of their country, culture and cuisine (prepare in advance if need be), and your request for information about the best menu items will be taken more seriously.

●At fine dining establishments, look for staff who will offer a firm opinion as to what is best, rather than responding with something like “Everything on our menu is good!”

●If there is a fixed-price menu for lunch, usually it is neither the worst nor the best items but rather those least likely to offend the mainstream patron. Aim to do better.

Another tip for eating well in downtown Washington is to show up at 5:30 for dinner, if you can, or at 11:30 for lunch. The service will be better, and there is virtually no chance of experiencing a kitchen breakdown, which is pretty common on a Saturday at 8 p.m. Oyamel for one is a much better restaurant in its off hours, and kitchen breakdown during peak hours is a common complaint about El Centro D.F., the Richard Sandoval establishment.

Don’t overlook gas station fare

Choosing the best ethnic food downtown is tougher, as high rents and tight space keep out the kinds of gems we find so frequently in the Virginia and Maryland suburbs. A reigning principle of good ethnic dining is to look for clusters of restaurants of the same kind, as we find with Vietnamese restaurants in Falls Church or the numerous Korean places in Annandale. The D.C. cluster of Ethiopian restaurants on 9th Street qualifies (I’ve enjoyed every single place in that row). But it is hard to find comparable examples around town.

Dupont Circle, Adams Morgan and U Street have not succeeded in generating first-rate clusters of particular ethnic cuisines. Dupont is now gentrified and expensive, while the other two neighborhoods bring too much automatic foot traffic, most of all from the young, to enforce high-quality standards on ethnic food. The population of Washington is in the range of a mere 600,000 people, and so few ethnic groups produce a large enough local critical mass of diners to support an informed level of taste. Washington’s Chinatown has been a food embarrassment for a long time, but you will find a thriving Chinese community, along with quality Chinese restaurants, up in Rockville.

Good ethnic food in D.C. is a matter of spotting the isolated outposts, usually in neighborhoods good enough to attract some visitors but in unexpected nooks and crannies. My favorite ethnic D.C. dining at the moment is Keren, at Florida Avenue and 18th, an Eritrean place under new ownership.

The area on and near 14th Street has promise, and I enjoy the Uruguyan sandwiches at Fast Gourmet at Lowest Best Price Gas, 1400 W Street. Yes, that is attached to a gas station. Get the chivito, a sandwich with beef, ham, mozzarella and escabeche.

Ethnic places don’t usually go through the boom-and-bust cycles of the trendy restaurants, unless it is a deliberately trendy and expensive ethnic place. Most ethnic spots already are appealing to an informed clientele, and the restaurant is likely to stay good as long as the proprietor sticks around.

To be sure, for D.C. ethnic food there are also the food trucks, which flourish when the law leaves them free to operate. Nonetheless, food trucks are as much a sign of underlying weakness as of strength. Think of them as proof that zoning and rents won’t allow for much nearby good, quick, sit-down, cheap ethnic food. In any case, the downtown food trucks do a much better job for lunch than for dinner.

If all else fails, gas up the car

Sometimes D.C. residents dream of going to the suburbs by Metro for first-rate ethnic food, but that’s harder than you might think. The restaurants near the closer Metro stops (think Bethesda or Clarendon) tend to be the most like ethnic food in D.C., with some quality expensive places, such as the Mediterranean food at Cava, but overall those sites tend toward the mainstream.

The best suburban ethnic food is far from the Metro stops and high rents, so think about travel by car or ZipCar or even cab (you may very well earn the cab fare back on the cheaper cost of dinner).

Eating “pretty well” in downtown D.C. is easy. Eating truly well, especially for your money, is a challenge. The options are there, but they require a bit of urban knowledge, some economic reasoning and a willingness to turn somewhat ruthless. Keep in mind that your discipline in choosing the best will improve the food options for everybody else, too.

 Slideshow: Secrets for Smart Dining in Washington 

The Washington Post: Can “Eurobonds” Fix Europe?

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This article originally appeared in The Washington Post

Lately, there’s been lots of debate in Europe over whether the broken euro zone needs some sort of “eurobond” to alleviate the continent’s debt woes. French president Francois Hollande has made this one of his top priorities. Yet the most recent E.U. summit ended without much progress on the topic. So whatare eurobonds? And would they actually work?

Probably not talking about eurobonds. (JUAN MEDINA – REUTERS)The Guardian has a handy primer on the concept. The basic idea is that, right now, lenders and investors are nervous that a bunch of individual countries on the euro — from Spain to Portugal to Greece — might not repay their debts. So the cost of borrowing money for those countries has been spiking at various points. (Spain is the latest casualty.) That, in turn, makes their debt crises even worse, which raises the risk of a horrible death spiral, and so on.

The logic behind eurobonds is that, rather than individual countries trying to borrow money on their own, the entire continent would borrow money together, as a unit. Spain and Greece would, in effect, pay the same interest rates on their debts as France and Germany do. Since the euro zone as a whole is large and rich, that would calm the panic over individual countries. And troubled nations would get a bailout. If Portugal only had to pay the average interest rate of euro members, its annual debt payments would fall by €15 billion, or 9 percent of its GDP.

Not surprisingly, German politicians aren’t tickled by this idea. Germany can already borrow money at breathtakingly cheap rates. If it had to pool its debts with, say, Spain and Portugal, then Germany would have to pay more to borrow — by some estimates, up to €50 billion per year more, or 2 percent of its GDP. What’s more, some German leaders fear that some nations would use the eurobond as an excuse to behave irresponsibly. After all, if Italy’s borrowing costs are going to be subsidized by Germany, there’s less need to worry about racking up debt.

One recent alternative, floated by the European think tank Bruegel, is to offer up two types of bonds. Basically, if countries behave “responsibly,” they get access to the safe, continent-wide eurobonds. But if countries rack up further debt beyond a certain point, they have to pay for it on their own. A euro-wide commission — led by Germany — would determine which countries are behaving responsibly and irresponsibly.

But would any of this fix Europe’s woes? Tyler Cowen points out a few hitches. For one, new eurobonds would do little to address the slow, inexorable run on European banks — savers in places like Greece and Spain are gradually taking their euros out of local banks and sending them to Germany, which could end up depleting the banking systems in periphery countries. (As if on cue, the Spanish government just had to bail out its second-biggest bank, Bankia, which was hit hard by the housing bust.) “The key is guaranteeing the banks and their deposits, at reasonable cross-border cost,” Cowen notes. “This [eurobond proposal] doesn’t accomplish that.”

It’s also worth noting that, even with eurobonds, individual countries like Greece would still face years of grinding unemployment and remain uncompetitive as long as they’re tethered to the same currency as richer neighbors. As the Guardian’s Philip Inman notes, “They could help to calm the market panic and ease the immediate budgetary crisis of some countries, including Italy and Spain. But a eurobond would do nothing to reduce overall levels of debt, let alone tackle the underlying structural problem.”

Still, even if eurobonds, on their own, can’t bring Europe back to full health, many analysts think they’ll have to be a major part of the treatment course. And Germany may not be able to oppose the idea forever. As Ana Nicolaci da Costa of Reuters explains, if Greece exits the euro and defaults on its debts, then the entire continent will be faced with hefty losses that may have to be shared across Europe. That could make some sort of shared bond inevitable.

A Power Vacuum Is Killing the Euro Zone

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This article was originally published in The New York Times

As problems mount in the euro zone, it’s increasingly evident that we’ve been witnessing an institutional failure of monumental proportions.

What is to be done about Greece? Simply keeping it in the euro zone won’t help much, even if it’s possible.  The continuing crisis has sapped confidence in banks not only in Greece, but also in Spain, Italy, Portugal and Ireland, though to varying degrees.  Unless there are explicit guarantees to these banks soon, the market will likely take a further turn for the worse.

An absence of guarantees could prompt a broader chain reaction of capital flight and bank collapses across several countries.

The basic problem is that many people won’t keep their euros in a Greek bank, and perhaps not in a Spanish bank, either, when those euros can be moved to Germany or some other haven.

Yet German citizens do not appear ready to guarantee Spanish banks or, by extension, the whole credit system of Spain and the other periphery nations. Guarantees of that scope are probably impossible and may also require constitutional changes in some nations.

We thus face the danger that the euro, the world’s No. 2 reserve currency, could implode.  Such an event wouldn’t be just another depreciation or collapse of a currency peg; instead, it would mean that one of the world’s major economic units doesn’t work as currently constituted.

We are realizing just how much international economic order depends on the role of a dominant country — sometimes known as a hegemon — that sets clear rules and accepts some responsibility for the consequences.  For historical reasons, Germany isn’t up to playing the role formerly held by Britain and, to some extent, still held today by the United States.  (But when it comes to the euro zone, the United States is on the sidelines.)

There appears to be a power vacuum, and the implications are alarming. We may be entering a new world where international cooperative arrangements, in environmental areas as well as finance, are commonly recognized as impossible.  If the core European nations cannot coordinate effectively, what can we expect in dealings with China, Russia and other countries that have less of a common background and understanding?

In the euro zone, we are seeing two refusals to cooperate: Germany won’t renew financial pledges to Greece without Greek compliance on previous agreements, and Greece doesn’t want Germany to control its national budget.  Both seem reasonable positions, and maybe they are, but reasonable positions can apparently destroy an international agreement rather easily.

Is there a way out?  To seek a binge of pro-growth government spending, in the hope of stimulating economies, is to assume what already stands in doubt. The crisis has reached a head partly because the market already lacks trust in the periphery governments to invest money for sustainable economic growth.

There is also talk of forming a true fiscal union, but that seems to be doubling down on a bad idea.  If the euro zone cannot summon enough cooperation now, how is any union requiring tighter cooperation supposed to work?  How would national budgets be set and approved?  A credit collapse remains a real possibility.

Is it too late for monetary policy to make a difference?  The other euro-zone nations might allow Greece to leave, while guaranteeing payments for food and fuel, both of which Greece imports, for a reasonable period.  Higher price inflation might then depreciate the euro, limit the need for difficult downward wage adjustments, and help Spain and Italy improve their competitiveness.  The inflation could come through central bank bond purchases from the troubled nations, thus easing their debt problems.  That may be the only useful option still on the table.

But that’s also not easy.  First, economically healthier nations may be reluctant to accept the inflation, which would represent a rather direct, continuing redistribution of wealth to the troubled debtor countries.

The second problem is that some of the banking systems in the periphery nations may be too broken for monetary policy to take hold.  Imagine the European Central Banktrying to infuse new money and credit into Spain, while bank deposits move quickly to Germany, Switzerland and other safer places.  Again, why would anyone want to keep money in the bank of a fiscally troubled nation?  That loss of confidence will not be easily repaired.

Since December, the European Central Bank has lent more than a trillion euros to euro-zone banks, but that has bought no more than a few months of peace.  It isn’t clear how much more can be done.  It probably is about time to judge the euro zone as a failed idea — and rarely is it wise to double down on failed ideas.

What is most disturbing is that the euro-zone nations are democratic, protective of basic liberties, and have advanced intellectual and research communities. The final lesson of this debacle is that smart nations with noble motives can make very big mistakes.  And that should concern us all.

The New York Times: A Power Vacuum Is Killing the Euro Zone

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This article originally appeared in The New York Times

As problems mount in the euro zone, it’s increasingly evident that we’ve been witnessing an institutional failure of monumental proportions.

What is to be done about Greece? Simply keeping it in the euro zone won’t help much, even if it’s possible.  The continuing crisis has sapped confidence in banks not only in Greece, but also in Spain, Italy, Portugal and Ireland, though to varying degrees.  Unless there are explicit guarantees to these banks soon, the market will likely take a further turn for the worse.

An absence of guarantees could prompt a broader chain reaction of capital flight and bank collapses across several countries.

The basic problem is that many people won’t keep their euros in a Greek bank, and perhaps not in a Spanish bank, either, when those euros can be moved to Germany or some other haven.

Yet German citizens do not appear ready to guarantee Spanish banks or, by extension, the whole credit system of Spain and the other periphery nations. Guarantees of that scope are probably impossible and may also require constitutional changes in some nations.

We thus face the danger that the euro, the world’s No. 2 reserve currency, could implode.  Such an event wouldn’t be just another depreciation or collapse of a currency peg; instead, it would mean that one of the world’s major economic units doesn’t work as currently constituted.

We are realizing just how much international economic order depends on the role of a dominant country — sometimes known as a hegemon — that sets clear rules and accepts some responsibility for the consequences.  For historical reasons, Germany isn’t up to playing the role formerly held by Britain and, to some extent, still held today by the United States.  (But when it comes to the euro zone, the United States is on the sidelines.)

There appears to be a power vacuum, and the implications are alarming. We may be entering a new world where international cooperative arrangements, in environmental areas as well as finance, are commonly recognized as impossible.  If the core European nations cannot coordinate effectively, what can we expect in dealings with China, Russia and other countries that have less of a common background and understanding?

In the euro zone, we are seeing two refusals to cooperate: Germany won’t renew financial pledges to Greece without Greek compliance on previous agreements, and Greece doesn’t want Germany to control its national budget.  Both seem reasonable positions, and maybe they are, but reasonable positions can apparently destroy an international agreement rather easily.

Is there a way out?  To seek a binge of pro-growth government spending, in the hope of stimulating economies, is to assume what already stands in doubt. The crisis has reached a head partly because the market already lacks trust in the periphery governments to invest money for sustainable economic growth.

There is also talk of forming a true fiscal union, but that seems to be doubling down on a bad idea.  If the euro zone cannot summon enough cooperation now, how is any union requiring tighter cooperation supposed to work?  How would national budgets be set and approved?  A credit collapse remains a real possibility.

Is it too late for monetary policy to make a difference?  The other euro-zone nations might allow Greece to leave, while guaranteeing payments for food and fuel, both of which Greece imports, for a reasonable period.  Higher price inflation might then depreciate the euro, limit the need for difficult downward wage adjustments, and help Spain and Italy improve their competitiveness.  The inflation could come through central bank bond purchases from the troubled nations, thus easing their debt problems.  That may be the only useful option still on the table.

But that’s also not easy.  First, economically healthier nations may be reluctant to accept the inflation, which would represent a rather direct, continuing redistribution of wealth to the troubled debtor countries.

The second problem is that some of the banking systems in the periphery nations may be too broken for monetary policy to take hold.  Imagine the European Central Bank trying to infuse new money and credit into Spain, while bank deposits move quickly to Germany, Switzerland and other safer places.  Again, why would anyone want to keep money in the bank of a fiscally troubled nation?  That loss of confidence will not be easily repaired.

Since December, the European Central Bank has lent more than a trillion euros to euro-zone banks, but that has bought no more than a few months of peace.  It isn’t clear how much more can be done.  It probably is about time to judge the euro zone as a failed idea — and rarely is it wise to double down on failed ideas.

What is most disturbing is that the euro-zone nations are democratic, protective of basic liberties, and have advanced intellectual and research communities. The final lesson of this debacle is that smart nations with noble motives can make very big mistakes.  And that should concern us all.

Scaling the Great Wall

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This article was originally published in the May 2012 edition of Washingtonian

Shopping for a month at an Asian supermarket can open your eyes to wonderful foods, cause a lot of confusion, and yield some interesting discoveries about how we choose what to put on the table.

Most of us are familiar with the American supermarket–maybe too familiar. The Safeway or Wegmans or corner market supplies a lot of convenient food–and a lot of those aisles are full of things that are only a rough approximation of food–but that very convenience can make the local supermarket a rut. The deadening hand of routine takes over our shopping lives: We know what we want, where to find it, when to get it, and what to do with it. These habits can be the biggest obstacles to discovering new regions of the food universe.

But abstain from your routine for a week or so and your natural ability as an innovator flourishes. An innovating consumer has a profound effect on the marketplace and the food economy. After all, maybe the American supermarket, for all its conveniences, isn’t actually the best way to sell–or buy–food. At the very least, maybe it’s not the best way to do it all the time.

With that thought in mind, I conducted an experiment. For a month, I’d refrain from buying food from mainstream supermarkets and instead choose–exclusively–an ethnic grocery store, in this case a big Chinese/Asian market in Falls Church called Great Wall.

Full disclosure: During the experiment, I still traveled to other cities and ate in restaurants–supermarkets have never completely dominated my food life. In any case, for a month I’d go cold turkey on traditional American supermarkets, and for every day out of town I had to do an extra day shopping at the ethnic market.

The idea behind this experiment grew out of my economic approach: Food is a product of economic supply and demand, so try to figure out where the supplies are fresh, the suppliers are creative, and the demanders are informed.

When it comes to ethnic markets, most of the shoppers are well informed. They come from cultures where food preparation receives more attention than in the United States. They’re also largely immigrants or children of immigrants. Either they hail from cultures where most food prices are lower than they are here or the immigrants have lower incomes themselves, or both.

It seemed natural to select what’s probably the world’s oldest and perhaps most sophisticated food culture, Chinese.

Great Wall Supermarket is in the Merrifield area of Falls Church, about a 20-minute drive from DC in a part of Fairfax County with plenty of Chinese immigrants. The Chinese-owned store, in a strip mall, has ten long aisles as well as some side spaces.

The most daunting task is finding something. At first, even though I’d been there many times and I’m relatively familiar with Chinese cuisine–by Western standards at least–it could take me 20 minutes to find just one or two items. It felt like walking into a labyrinth, even with my savvy 21-year-old stepdaughter helping out.

Many of the jars are labeled in Chinese characters, with the English small and hard to find. So if you’re told “aisle eight, in the middle, on the right,” it’s a help but not a solution. You’re still confronted with an array of hard-to-distinguish jars. Even if you know something about Chinese food, “bean sauce” comes in a number of colors and varieties, and the store has dozens of soy sauces. Once I moved beyond the highly visible items such as meats, I struggled to find what I wanted–at least at first.

The dried goods and candy were hardest to browse through. Not everything had an English label. Often I didn’t know exactly what I was looking for, if only because the name of something in a book or cookbook didn’t correspond exactly to the name on the package. Was ya cai the same as “pickle mustard vegetable” or “pickled mustard green”? I still don’t know for sure, although I think so, and that’s assuming I can find the English inscription at all.

What’s more, when I entered those aisles, I sometimes had the feeling people were staring at me, thinking: What does he want here? I learned quickly how dependent I normally am on background cultural knowledge and simple rules of thumb.

I decided to consult a Chinese graduate student at George Mason University, where I teach. Rong Rong is studying for a PhD in economics and is from a region near Shanghai. She has a friendly manner and is possibly the sharpest student in her cohort. Rong Rong told me to try the double-mushroom soy sauce, which she claims tastes just like what her mother serves in China.

I asked Rong Rong if she had trouble finding items in Great Wall. The answer was no, although she did admit to being confused at Giant, despite almost five years living in the United States. She found Giant’s cereal aisles the hardest to master, and even though her English is very good she can’t read all of the labels nearly as fast as I can or recognize from a glance what an item is going to taste like.

Another obstacle in using Great Wall is asking for directions to sought-after items. By all appearances the staff works hard, and finding an employee isn’t difficult. The problem is that virtually all of the workers are–oddly enough–Spanish-speaking, most likely from El Salvador, with varying abilities in English.

I speak Spanish, but this isn’t always much help. I don’t know some of the words for Chinese items in Spanish, but more commonly there isn’t a good translation. Salsa dulce de los frijoles doesn’t carry the same connotation as “sweet bean sauce” and requesting it in Spanish didn’t get me where I wanted to go. Dulce y agrio does map directly into “sweet and sour,” but that simple translation is the exception. It’s not easy to find out the Spanish word for pickled fresh bamboo shoots.

In most cases, the Latino staff knows neither the English nor the Chinese words for what’s on their shelves. Entering the store is like being robbed of part of one’s linguistic facilities. Another Chinese graduate economics student, Siyu Wang, noted that the prevalence of Spanish speakers among the workers was one of her biggest surprises when she first visited Great Wall.

There are some Chinese staff, including most of the cashiers, but their English is limited. One strategy that does work, when it can be applied, is to bring a Chinese cookbook containing the characters for the desired items. Show the relevant characters to someone who works in the store. If you can find a Chinese employee, he or she will lead you directly and enthusiastically to the right place.

Mostly, I learned where things were by walking down all of the plausible aisles and then looking in places that seemed logical. Over time, that worked better as I got to know the market.

With each visit, I increasingly divided the store into “parts I use” and “parts I don’t use.” Those I used included the produce, the meats and fish and tofu, and the spices and sauces, plus the frozen goods, the dumplings, and the different noodles, dried and fresh. I didn’t do much with the American or Latino goods, the bags of dried fish, the cans of condensed milk, the Asian sweets, or the cookware.

Continue reading on Washingtonian.com 

Eat Like An Economist, Dine Like a King

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This article was originally published in The Independent

Where’s the better place to get a good meal: central London or Bradford? How do you get a waiter to recommend a dish that he’s not just been told by his boss to push that day? And where should you eat seafood in a poor country?

The answers, according to renowned American thinker and economist Tyler Cowen, are: the restaurants of Bradford (“it can sometimes resemble a war zone but it’s the best Pakistani food I’ve had”); ask the waiter what the “best” dish is, not what they recommend; and in areas less than 10 miles from the sea (think about refrigeration).

Cowen is known as a fine intellect – Foreign Policy magazine named him the 72nd-most-important global thinker in December – and many will follow his acclaimed blog Marginal Revolution. His latest book, An Economist Gets Lunch, applies an economist’s cold logic to the world of food. If you’re interested in how the food and restaurant industries work – and how to exploit those factors for your own good – then Cowen’s work is indispensable.

Observations in it range from the anecdotal to the macro. In one story about a good restaurant in Germany, he’s sitting next to a squabbling German family who are clearly not enjoying themselves. This, Cowen concludes, is proof that the joint must be good. His logic? If the family is comfortable enough to come here and sulk and argue with each other, they must come regularly enough to see it as a home from home. And the only reason they’d keep coming back? Its good food.

Earlier, on a macroeconomic scale, the book describes the debilitating effect that Prohibition had on American food, ie, the best American high-end restaurants survived financially with help from their highly marked-up bars (as they do now). So when alcohol sales were made illegal in 1920, the restaurants that relied on wine either had to go dry (which didn’t help the bottom line or indeed the food, fine wines being a natural accompaniment) or go underground. The dry restaurants lost their customers; the speakeasies had to run the risks of illegality, including “reliance” on the criminal underworld.

As the best restaurants in cities such as Chicago and New York from the period closed, so went the expertise that bled into each city’s food culture. This, in turn, led to even fewer good new restaurants opening. The end of Prohibition in the mid-Thirties, allied to a crackdown on immigration into the US, was then followed by the mass food-processing necessities (behold the tinned good!) of the Second World War. From these culinary setbacks, Cowen suggests, American food culture was left behind in war-ravaged Europe.

When it comes to eating abroad there’s a brilliant vignette early on. Cowen describes flying to Nicaragua, taking his own cheese and sourdough with him to avoid the aircraft food and – most importantly – to avoid being hungry upon arrival at his destination and thus making a bad or desperate choice, as many tourists do. In Nicaragua, he pays an elderly (hence experienced) taxi driver to take him to find some quintessentially Nicaraguan food and ends up eating beautiful, cheap quesillos (tortillas with cream, gooey cheese, onions and vinegar) for next to nothing (including the extra fare and lunch for the driver).

Ideas such as that don’t guarantee cheap meals, but they help to guarantee the best meals. More rules of thumb for choosing where to eat out are equally fascinating.

Take sauce. If you’re in a rich Western city, choose a dish with sauce. Your raw materials might not be that fresh (they’ve been in a fridge for a few days), so the quality of the food will depend on the creativity going into its composition. America is good for this because it attracts lots of creative immigrants. Conversely, if you’re in a poor country with not much history of refrigeration then it’s likely the culture will be for food to be eaten as fresh as is possible, so that it doesn’t go off. Which means, Cowen says, that you should choose “ingredients-intensive” dishes – such as a barely adorned fish, or a plate of cheese and vegetables.

When it comes to value, Cowen encourages selfish rationalism. Look at the staff of a restaurant, he advises. If a place has valets, floor managers etc, then you’re to be subsidising the cost of all those (helpful, admittedly) staff with your bill. If a Korean restaurant is staffed by family members helping out mum or dad (or son or daughter) that cheap labour will be saved on your bill.

Look at the cost of drinks, too. “It is easier to find out and remember the price for major items – main courses – than it is drinks,” Cowen explains. People who are wealthy enough to go to a good restaurant and order drinks without paying attention to their cost are unlikely to be fazed by the huge mark-ups on wine, beer and Coca-Cola. Restaurants with £15 main courses that cost, say, £11 in raw materials can cross-subsidise the cost of the food with £3.50 glasses of Coke that cost about 20p in post-mix syrup.

The end result is that the canny consumer who goes to a top restaurant can get a brilliant meal for £35 (if they drink tap-water). That meal is then subsidised by the wealthy patrons who don’t bat an eyelid at ordering a £100 bottle of wine (which may wholesale for half that). It’s not just a good deal for the water drinkers, it’s good for the restaurants – the lowered cost of the food dishes (thanks to drinks costs) means less wealthy customers aren’t put off. Which means more covers. Which is fine, so long as the water drinkers don’t hang around at the valuable table space.

A few other random pointers: the best restaurants in Las Vegas are at the back of the casinos – the owners want you to gamble on your way to the good food; when it comes to subcontinental food, “the more aggressively religious the decor, the better it will be for the food” (less pandering to Western tastes), and Pakistani restaurants that are reluctant to serve alcohol are usually a good bet – it encourages Muslim Pakistani customers who will be more demanding about the authenticity of their food.

Cowen’s good on shopping, too: one chapter describes the benefits of embracing a local ethnic supermarket where, as in the Pakistani restaurants, immigrant customers are incredibly well informed about their greens. A lack of knowledge of where things are can also lead to not buying so much junk food and expanding our palates by trying new, unusual products.

And as for expensive kitchen equipment, Cowen advises buying cheap versions of all the basic gear and then, once you work out which items (chef’s knife, food processor etc) are used regularly in the “winner-takes-all” market of the home kitchen, invest in high-end versions of those products. And don’t fill your kitchen with useless gizmos, either.

All good advice. It has no recipes, few restaurant recommendations and no famous chef names, but An Economist Gets Lunch might be the most interesting book about food you read all year.

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