Remittances gone wild?

It's now easy as pie to send money home. Anyone familiar with labor markets in the Arab Gulf knows that there is a heavy reliance on foreign workers. And that many of these workers send a large portion of the pay home to their families. This supports a large formal and informal money transfer system.

There are new, simple, inexpensive ways of transferring money. Will they be adopted here, and if so how rapidly will they transform the way remittances are made?

From Wired:

Just a decade ago, the idea of moving money that quickly and cheaply would have been ridiculous. Checks took ages to clear. Transferring money from one bank account to another could take days, as banks leisurely handed off funds, levying fees nearly every step of the way. Credit cards made it a little easier to pass money to a friend — provided that friend owned a credit card reader and didn’t mind paying a few percentage points in fees or waiting a couple of days for the payment to process.

Ivey got around that problem by using PayPal. Since 1998, PayPal had enabled people to transfer money to each other instantly. For the most part, its powers were confined to eBay, the online auction company that purchased PayPal in 2002. But last summer, PayPal began giving a small group of developers access to its code, allowing them to work with its super-sophisticated transaction framework. Ivey immediately used it to link users’ Twitter accounts to their PayPal accounts, and his new company, Twitpay, took off. Today, the service has almost 15,000 users.

That may not sound like much, but it sends a message: Moving money, once a function managed only by the biggest companies in the world, is now a feature available to any code jockey. Ivey is just one of hundreds of engineers and entrepreneurs who are attacking the payment ecosystem, seeking out ways small and large to tear down the stronghold the banks and credit card companies have built.

You'll notice that the article emphasizes how these innovations will affect the formal money transfer market. I'm more interested in how they may affect the informal but potent hawala system of money transfers between workers in the Arab Gulf and their families in Pakistan, India, etc.

Annals of classroom incentives

How to get students to staple assignments.

Dubai's failed bid to buy an artistic identity

There's a new book out about Dubai, written by the man hired to make Dubai a cultural mecca -- Michael Schindhelm.

Michael Wise has a review:

His pressing task was to create swiftly what Dubai's leaders proclaimed would be "the most comprehensive cultural destination in the world." This included, first and foremost, an opera housed within an undulating structure designed by starchitect Zaha Hadid to resemble sand dunes and meant to accommodate an audience of 3,000 in a society with no tradition of theater or music. Schindhelm tried in vain to point out the acoustic drawbacks of such a mammoth auditorium, pushing instead for a never-to-be-built opera house....

Schindhelm was hampered from the outset by the profound disarray and highly opaque decision-making of Dubai's madcap dash to globalize. He was assigned to work in the same skyscraper where Dubai's top government authorities sat on the 52nd floor, while his own office was located on the 28th with two phone lines, only one of which could make international calls. The fax machine was on the 36th floor, and the photocopier was on the fourth.

He was also confronted by particularly Arabic notions of Western culture. He was told early on, for example, that Dubai natives believe "piano playing comes from the devil's fingers" and warned, "You will have to convince us otherwise." Opera for some in Dubai, Schindhelm reports, is really the Lion King....

In an interview about his book, he told the Berliner Morgenpost that Dubai customs officials would not let him receive by mail a monograph about the painter Francis Bacon because they feared its contents contravened Islamic dietary strictures.

Never mind that in Dubai you can buy every cut of pork, kind of sausage, or version of, um, bacon known to mankind.

But Wise wisely ends on a cautionary note for naysayers of all kinds:

Schindhelm writes in his book that Dubai is still working to create an alternative to the social injustice and religious fanaticism in neighboring Saudi Arabia and nearby Iran and Pakistan. Perhaps he was naive to see in the desert sands an opportunity for a cultural utopia, but he's wise to warn against gloating over the end of the city's glitzy heyday. With its central location between Europe and Asia, Dubai seems likely to survive and thrive, if more soberly, as a trading center. But next time, it might do better to realize that culture is worth more than just eye candy for real estate megalomania that can too easily run amok.

Dubai and the tourism kiss of death

Dubai is becoming more like Sharjah, the bastion for the conservative-minded tourist. The story that's always been told about how Sharjah came to be that way is that it had borrowed heavily from Saudis and had to toe the line. Never mind the irony that many Saudis flocked to Dubai precisely because it was an oasis of western pleasures. Or the irony that Sharjah actually benefited from this split in the market -- the more the pleasure seekers and the conservatives mix the less they enjoy themselves.

So why has Dubai launched a moral crackdown? That's a question the Wall Street Journal is asking:

"Dubai is in danger of gaining a reputation as a place where you can be arrested for minor incidents," said Sean Tipton, a spokesperson for the Association of British Travel Agents, which represents more than 5000 travel operators in the U.K. "If this type of attitude continues, Dubai's tourism industry will be harmed."

Dubai has grown to become the Persian Gulf's most popular destination due to its liberal tolerance of alcohol and partying in a region that's better known for its austere religious values. Billions of tourism dollars may be under threat as Dubai tightens up. Tourism is crucial to Dubai and accounts for a fifth of the emirate's economy. Close to 41 million passengers traveled through Dubai International Airport last year, making it one of world's fastest growing. Emirates Airline, Dubai's flagship carrier, indirectly contributes just over $10 billion to the sheikdom's economy each year.
...
Dubai finds itself in a difficult position promoting itself as one of the world's top tourist destinations, whilst upholding strict Islamic laws. Although tourists can enjoy most activities, there are laws regarding alcohol, drugs, sex outside marriage and dress.

"Dubai is looked on as a bastion of immorality within the wider Gulf region," said Jim Krane, author of 'City of Gold: Dubai and the Dream of Capitalism' and an expert of the U.A.E. "Abu Dhabi is another influence on Dubai. With Abu Dhabi as the rising star, there is more pressure on Dubai to live up to the morals of a Gulf Islamic state." Oil-rich Abu Dhabi, traditionally more conservative than Dubai, was forced to bailout its poorer cousin after a $100 billion mountain of debt accumulated by building many of the lavish tourism projects got out of control.

So there you have it. Dubai's bind is the same as the one Sharjah had: it is beholden to conservative money lenders who have Dubai by the shortandcurlies.

Tunnelnomics

The economy of Gaza:

Despite the melodramatic way in which the tunnels [are] sometimes reported in the media, commercial smuggling is far from secretive. Indeed, on the Gazan side of the border it isn't really smuggling at all, but rather a more-or-less open business that is partly regulated by the local authorities. Many of the Gaza tunnels are within plain sight of Egyptian border posts, sheltered under tarps or sheds and surrounded by piles of discarded sand. The electrical connections are courtesy of Rafah municipality, to which the smugglers pay a license fee. Shops in the neighbourhood sell compressors, construction materials, and other tools of the trade.

It has become so crowded underground that tunnels sometimes run into each other, resulting in subsurface fist-fights. On the other hand, the proliferation of nearby tunnels has apparently made underground rescues easier, with the sandy soil of the area always prone to cave-ins. Many of the tunnel workers are teens, and the working conditions are far from safe. Recently, the Israeli human rights group B'Tselem distributed video cameras to Gazan youth to record their lives -- one of the most interesting videos was about life working in the tunnels.

The intense competition has brought other complications. Smugglers have been known to inform on each other when contraband shipments (like drugs and alcohol) are involved, or to pour noxious substances in the tunnels of rivals. Tunnel operators alleged to have pro-Fatah political leanings are particularly vulnerable to harassment and dirty tricks.

One interesting question is the extent to which the tunnels have reshaped Gaza's local political economy. Some argued that they have, shifting economic power south to the border area, created a new class of wealthier smugglers and merchants.

Others, however, suggest that it has had less substantial effects. With an average tunnel costing up to $100,000 to dig, tunnel operators need outside investors -- typically, from the same merchant families that long held economic power in Gaza. The same merchants might also control extended supply and distribution channels.

The investor relationship is usually at arm's length, often by mobile phone and money transfers, such that the investor and operator do not directly meet. This set the stage for a number of fraudulent schemes that came to light last summer, with Gazans of modest means investing in tunnels that turned out not to exist. Tens and possibly hundreds of millions of dollars were stolen in this way, and some suggested senior members of Hamas might somehow be implicated. The Hamas government arranged partial compensation of the victims.

New book on Dubai

Syed Ali, Dubai: Gilded Cage, Yale University Press, 2010.

Syed Ali is assistant professor of sociology at Long Island University, Brooklyn.

From the book blurb:

Syed Ali delves beneath the dazzling surface to analyze how - and at what cost - Dubai has achieved such success. Ali brings alive a society rigidly divided between expatriate Westerners living self-indulgent lifestyles on short-term work visas, native Emiratis who are largely passive observers and beneficiaries of what Dubai has become, and workers from the developing world who provide the manual labour and domestic service needed to keep the emirate running, often at great personal cost.

Markets in everything

NYT. Putting unemployed dogs to work sniffing for bed bugs:

Increasingly, real estate lawyers are urging buyers in contract to inspect apartments before they close, and in their advertising, many pest control companies exhort would-be tenants to “inspect before you rent.” And dogs like Cruiser can inspect a room in minutes, whereas lesser mammals like human beings need hours to conduct a visual inspection.

Bedbug-sniffing dogs, adorable yet stunningly accurate — entomology researchers at the University of Florida report that well-trained dogs can detect a single live bug or egg with 96 percent accuracy — are the new and furry front line in an escalating and confounding domestic war.

While experts cite a host of reasons for the upsurge, they agree on one thing: the bugs, which were mostly eradicated in this country at midcentury by now-banned pesticides like DDT but remained a constant scourge overseas, are finding their way back to the United States through an increase in global travel.

(Oh wait, wouldn't they "find their way back" because they were never fully eradicated to begin with?)

Toyota discriminates against the elderly

Ted Frank as quoted by Marginal Revolution:

In the 24 cases where driver age was reported or readily inferred, the drivers included those of the ages 60, 61, 63, 66, 68, 71, 72, 72, 77, 79, 83, 85, 89—and I’m leaving out the son whose age wasn’t identified, but whose 94-year-old father died as a passenger.

This may just be evidence that Toyotas are popular with older drivers. Except there is evidence that older drivers have been known to confuse the gas and brake pedals. If this is true and if all cars were equally likely to have true sudden acceleration problems, then Toyota would have a higher rate of cases classified as sudden acceleration.
More in a commentary today in the New York Times,

It is interesting to note that unintended acceleration in the 1980s happened before the arrival of drive-by-wire controls and computerized engine-management systems.

Back then, many of us who worked in fields like ergonomics, human performance and psychology suspected that these unintended-acceleration events might have a human component. We noticed that the complaints were far more frequent among older drivers (in a General Motors study, 60-to-70-year-olds had about six times the rate of complaints as 20-to-30-year-olds), drivers who had little experience with the specific car involved (parking-lot attendants, car-wash workers, rental-car patrons) and people of relatively short stature.

Several researchers hypothesized how a driver, intending to apply the brake pedal to keep the car from creeping, would occasionally press the accelerator instead. Then, surprised that the car moved so much, he would try pressing harder. Of course, if his right foot was actually on the accelerator, the throttle would open and the car would move faster. This would then lead the driver to press the “brake” harder still, and to bring about even more acceleration. Eventually, the car would be at full throttle, until it crashed. The driver’s foot would be all the way to the floor, giving him the impression that the brakes had failed.

In the cases that went to court, jurors naturally asked, why would a driver with decades of driving experience suddenly mistake the accelerator for the brake? And why would the episode last so long — often 6 to 10 seconds or more? Wouldn’t that be ample time to shut off the ignition, shift to neutral or engage the parking brake?

First, in these situations, the driver does not really confuse the accelerator and the brake. Rather, the limbs do not do exactly what the brain tells them to. Noisy neuromuscular processes intervene to make the action slightly different from the one intended....

The author is Richard A. Schmidt, a professor emeritus of psychology at the University of California, Los Angeles.

Heh, in composing this post my finger did not do what my brain told it to do. I was inserting a hyperlink and mistakenly clicked the blockquote button. Ever do that?

Economist calls himself bizarre

Paul Krugman disagrees with himself. Ad hominem style -- which is his style.

Greece and Germany; Dubai and Abu Dhabi

What do you think? The Germans don't want to bail out profligate Greece. Is this anything like Abu Dhabi's reluctance to bail out Dubai? The logic of a bail out is that although it rewards behavior, the alternative of letting Greece, or Dubai -- or AIG to give an American example -- would be worse for both parties. Of course, Abu Dhabi was able to extract its pound of flesh.

Here's The Weekly Standard on Greece and Germany:

Opinion polls show that over two-thirds of Germans reject the idea of contributing to a Greek bailout, and the venom with which that opposition is expressed suggests that exasperation has drifted into contempt.

To give more money to the Greeks would be akin to giving schnapps to an alcoholic, argued Frank Schaeffler, deputy finance spokesman for the Free Democrats, the junior partner in Germany’s governing coalition. Focus magazine ran a cover story on “The Fraudster in the Euro-Family” (a reference to the more creative aspects of the Greek government’s accounting) and illustrated it with the Venus de Milo, one-armed and flipping the bird. The tabloid Bild raged at the “proud, cheating, profligate” Greeks. A writer for the rather more heavyweight Frankfurter Allgemeine Zeitung asked whether Germans should have to retire at 69 rather than 67 to pay for Greek workers striking against proposals to increase their retirement age from 61 to 63. The mood in Germany was not improved by Greece’s deputy prime minister. Stung by all the criticism of his country, he grumbled that, having made off with Greece’s gold during the war, the Germans were in no position to complain “about stealing and not being very specific about economic dealings.”

All of which reminds me. I don't recall the voters in Abu Dhabi complaining about a Dubai bailout.

Addendum. The first commenter says Greece hasn't defaulted, but Dubai has, so the comparison is a false to begin with. But, one of the reasons Greece has not defaulted is that it has continued to be able to borrow. Which raises the question, why? Is it because investors are more confident that Germany will save Greece from default than they were that Abu Dhabi would step in prevent the Dubai default? The commenter also mentions CDS rates -- i.e., the cost of insuring sovereign debt. This February 12th article about the high level of Greece's CDS also notes "the cost of insuring Dubai’s sovereign debt against default rose to its highest level since November as concerns resurfaced over the emirate’s large debt." Greek CDS rates have fallen with talk of an EU/German bailout. Is there similar talk that Abu Dhabi stands ready to continue to backstop Dubai?

Famous economics majors

Name this famous economics major.