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For the world as as a whole, exports need to equal imports. Thus, the large US trade deficits are necessarily offset, out there in the world economy, by equally large trade surpluses in other countries. From a global perspective, these offsetting surpluses are largely in three countries: China, Germany, and Japan.

Here\’s are some statistics from the IMF last October showing trade balances around the world. The US trade deficits are near the top. Two lines lower, you can see the large German trade surpluses. Four lines below that are the large trade surpluses for Japan. Further down, under the category of \”Emerging and Developing Asia,\” are the trade surpluses for China. Of these three, China had the biggest trade surplus in 2015, but Germany\’s trade surplus was larger in 2016 and is projected by the IMF to be much larger in 2017.

For some additional perspective on trade surpluses in these countries, here are a couple of figures using OECD data.

This figure shows trade surpluses over time from 2000 through the third quarter of 2016. (The data is quarterly, so you would need to add it up to get the annual numbers). The red line spiking high in the middle of the figure shows China\’s trade surpluses, which were near-zero in the early 2000s before taking off, and are now slightly below German levels. The purple line shows Japan\’s trade surpluses, including that intriguing moment in 2014 when Japan ran a trade deficit for a quarter. The blue line shows Germany\’s trade surpluses, which start off as trade deficits back around 2000 and have climbed since then.

China\’s economy is much larger than Germany\’s. So given that their trade surpluses are roughly similar in absolute size, Germany\’s trade surplus will be a much larger share of it
Here is the same trade data expressed as a share of GDP. Germany\’s trade surpluses are now up to about 8% of GDP. As a share of GDP, Japan\’s trade surpluses are larger than those of China.

Like a lot of economists, I think the seemingly belief that trade surpluses are a sure-fire sign of economic health while US trade deficits are a sign that the rest of the world is taking advantage of us is a signal of illiteracy in economics. I won\’t argue that case here, beyond noting that Japan\’s trade surpluses during the last quarter-century have not meant that Japan\’s economy was growing in a robust manner.

My sentiments are more in line with those of Adam Smith, whose 1776 classic The Wealth of Nations can in some ways be understood as an explanation of why the widespread political focus of his time on attaining trade surpluses (an economic philosophy known in its time as \”mercantilism\”) was misguided. For example, Smith wrote (Book IV, Chapter 3):

\”Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses and the other gains in proportion to its declension from the exact equilibrium. Both suppositions are false. A trade which is forced by means of bounties and monopolies may be and commonly is disadvantageous to the country in whose favour it is meant to be established … But that trade which, without force or constraint, is naturally and regularly carried on between any two places is always advantageous, though not always equally so, to both.\” 

But if the US political system is going to have an argument over how other countries need to reduce their trade surpluses, it is at least clarifying to start with some facts.

China\’s trade surpluses were very large about 10 years ago, from 2006-2008, but have declined since then, and on IMF projections are already projected to drop considerably in 2017. These projections were from last October, before the US election, and thus were not based on an shift in policy by a Trump administration.

However, Germany\’s trade surpluses have been growing pretty steadily over time, have now outstripped China\’s trade surpluses both in absolute size and in share of the economy, and on IMF projections are likely to remain high in 2017.  If we\’re going to have a political argument in which US trade deficits are blamed on other countries, rather than on high rates of US domestic consumption and low rates of US domestic saving, we presumably should be negotiating harder with Germany than with China.

Imagine that I need a kidney donation, and I\’ve got a willing donor. But there\’s a problem: their donated kidney will not be physically compatible with me. What can be done? For Al Roth, the natural next thought is whether it\’s possible to find a two pairs of people who could carry out an exchange, in which my willing donor gives a kidney to you, and your willing donor gives a kidney to me. And next, you can think of multiple pairs of people, where each person who needs a kidney also brings along a willing kidney donor, and we figure out a chain of swaps where each of those who need a kidney can get one from a compatible donor.

As part of a series called \”From Research to Reward,\” the National Academy of Sciences has produced a nice 5-minute video of this kind of kidney exchange called \”The Matchmaker: An Economist Tackles Kidney Exchange.\” It features a couple where the husband needed a kidney and his wife was a willing donor, but her kidney was not compatible for him, so she donated to someone else and he received a donated kidney from someone else. The wife says: \”This algorithm that was created by this economist, I cannot explain enough how it gives you back your life.\”

Now comes the idea of \”global kidney exchange,\” put forward in \”Kidney Exchange to Overcome Financial Barriers to Kidney Transplantation,\” American Journal of Transplantation (March 2017, pp. 782-790) by a team of authors: Michael A. Rees, Ty B. Dunn, Christian S. Kuhr, Christopher L. Marsh, Jeffrey Rogers, Susan E. Rees, Alejandra Cicero, Laurie J. Reece, Alvin E. Roth, Obi Ekwenna, David E. Fumo, Kimberly D. Krawiec, Jonathan E. Kopke, Samay Jain, Miguel Tan and Siegfredo R. Paloyo.

Basically, the notion is to involve pairs of people from low-income countries–one needing a kidney, one offering to donate a kidney–in these interlocking chains of kidney donation. For those in high-income countries, the advantage is potentially a lot more compatible kidney donors. Because getting a kidney donation saves money on dialysis, it is possible to use that saved money and provide the kidney donation for free to recipients from the low-income country. The result is healthier people, and overall cost savings. The authors explain the idea this way (footnotes omitted):

Recent worldwide estimates suggest that 2–7 million people died prematurely in 2010 because they did not have access to renal replacement therapy (RRT). In countries that provide universal citizen access to end-stage renal disease (ESRD) treatment, the cost of hemodialysis is generally more than twice the cost of renal transplantation when time horizons of >1 year are considered. This disparity provides an opportunity for payers in developed countries to pay for two kidney transplantations and still reduce their overall cost compared with keeping one of their patients on hemodialysis. …

Organ shortage is the major limitation to kidney transplantation in the developed world. Conversely, millions of patients in the developing world with endstage renal disease die because they cannot afford renal replacement therapy—even when willing living kidney donors exist. This juxtaposition between countries with funds but no available kidneys and those with available kidneys but no funds prompts us to propose an exchange program using each nation’s unique assets. Our proposal leverages the cost savings  achieved through earlier transplantation over dialysis to fund the cost of kidney exchange between  developed-world patient–donor pairs with immunological barriers and developing-world patient–donor pairs with financial barriers. By making developed-world health care available to impoverished patients in the developing world, we replace unethical transplant tourism with global kidney exchange—a modality equally benefitting rich and poor. We report the 1-year experience of an initial Filipino pair, whose recipient was transplanted in the United States with  an American donor’s kidney at no cost to him. The Filipino donor donated to an American in the United States through a kidney exchange chain. Follow-up care and medications in the Philippines were supported by funds from the United States.

In this particular case, what seems to have happened is that the foreign donor unlocked a chain of possible other kidney donations and recipients.  The authors write:

The first GKE [global kidney exchange] was performed as a NEAD [nonsimultaneous extended altruistic donor] chain that has subsequently provided transplantations for one Filipino and 10 American ESRD patients. Six recipients had Medicare as their primary health insurance payer, and four  had commercial payers. If each of the ten health insurance payers had prospectively agreed to pay their share  of the approximately $160 000 that was provided by APD [Alliance for Paired Donation] to cover the cost of the Filipino donor and recipient’s  expenses, each payer would have paid approximately $16 000. Assuming that over the next 5 years the average savings per patient transplanted is $300 000, the reported GKE reduced the cumulative cost of health care for these payers by approximately $3 million. Critical to the scalability of GKE is recognition that if the average cost reduction is only $160 000 over 5 years (a conservative estimate), the concept is financially neutral even if performed as a simple two-way exchange.

The same issue of the journal includes a short editorial called \”Financial Incompatibility and Paired Kidney Exchange: Walking a Tightrope or Blazing a Trail?\” by A. C. Wiseman and J. S. Gill (pp. 597-98).  As they write, \”there are numerous considerations that require equipoise …\” They point out issues that could arise in how donors in other countries are identified, whether the benefits are equitably distributed, whether consent is freely given, how this might affect providers of transplant services in low-income countries, and more. All fair enough, and I suppose only a benighted economist could bristle against their request for \”sensitivity to the ethical pitfalls.\” I would only point out that while we are being sensitive to ethical pitfalls of global kidney exchange, 2-7 million people are dying every year without access to treatment for their kidney disease, and we should spare a little sensitivity for them, too.

However, productivity growth in this sector has been sluggish, both in the US and around the world. Thus, a team of authors from the McKinsey Global Institute–Filipe Barbosa, Jonathan Woetzel, Jan Mischke, Maria Joao Ribeirinho, Mukund Sridhar, Matthew Parsons, Nick Bertram, and Stephanie Brown–has published \”Reinventing construction through a productivity revolution\” (February 2017).

As a starting point, consider this figure. Each circle represents a country, and the size of the circle shows the size of the construction industry in that country. The horizontal axis shows the annual rate of productivity growth in construction from 1995-2015 in that country. The vertical line at 0% shows that the US construction industry, along with a number of others, has experienced negative productivity growth in the last two decades. The vertical axis shows output/hour in 2015, a standard measure of productivity. It\’s expected that high income countries like the US will tend to be relatively high in productivity: after all, that\’s why they are high-income countries in the first place. The countries in yellow are the few examples of nations where labor productivity in construction exceeds labor productivity in the country as a whole.

What\’s going on here? Here are some summary paragraphs from the McKinsey team:

\”Even while other sectors from retail to manufacturing have transformed their efficiency, boosted their productivity, and embraced  the digital age, construction appears to be stuck in a time warp. In the United States since 1945, productivity  in manufacturing, retail, and agriculture has grown by as much as 1,500 percent; productivity in construction has barely increased at all. This not only represents a lost opportunity for the industry but costs the world economy. …

The [construction] industry is extensively regulated, very dependent on public-sector demand, and highly cyclical. Informality and sometimes corruption distort the market. Construction is highly fragmented. Contracts have mismatches in risk allocations and rewards, and often inexperienced owners and buyers find it hard to navigate an opaque marketplace. The result is poor project management and execution, insufficient skills, inadequate design processes, and underinvestment in skills development, R&D, and innovation. … 

\”Examples of innovative firms and regions suggest that acting in seven areas simultaneously couldboost productivity by 50 to 60 percent. They are: reshape regulation; rewire the contractual framework  to reshape industry dynamics; rethink design and engineering processes; improve procurement and supply-chain management; improve on-site execution; infuse digital technology, new materials, and advanced automation; and reskill the workforce. Parts of the industry could move toward a  system of  mass production, standardization, prefabrication, and modularization—a production system—that has  the potential to boost productivity by five to ten times …\”

\”For the past 20 years, public corporations in the United States have been disappearing. The number of U.S.-based companies listed on Nasdaq and the New York Stock Exchange has dropped by over half since 1996. The dot-com bust of 2000 and the financial crisis of 2008 account for some of this decline, yet the downward trend has continued with little let-up, even as the markets have reached record highs. The number of IPOs in the past five years is less than the number in 1996 alone. Something has gone wrong with the public corporation in the United States.\”

So writes Gerald F. Davis at the start of \”Post-corporate: The Disappearing Corporation in the New Economy,\”  written for the Third Way think tank (February 1, 2017). He continues:

\”What industries have accounted for most of the decline? In the aftermath of the dot-com boom, there was an exit of many software and online service providers. A wave of exits and mergers in telecom industries soon followed. Since 2008, there has been a large reduction in the number of commercial and investment banks. The offshoring of electronics manufacturing and assembly led to closures and mergers of many US firms in these industries. The pharmaceutical industry has seen many closures and consolidations, too.\”

Davis also points out that in the modern globalized economy, there is often less of a need to raise capital by selling stock for a large production facility. If a firm is largely based on information technology capital, it\’s possible to lease or rent a lot of what is needed. If a firm is based on producing goods, it\’s often possible to outsource production to facilities in other countries. And if you do need to raise capital for a US production facility, you can often turn to private equity firms, which now manages more than $4 trillion in assets, rather than needing to sell stock. Davis writes:

\”Thus, Flip was the best-selling portable video camera in 2009, with 100 employees in San Francisco. Vizio was the best-selling television brand in the U.S. in 2010, with a staff of 200 in Irvine. If you can send your specifications to Alibaba, you can become a major electronics firm too, without having to leave your apartment. It’s not just in technology: if you want to launch a new beer, or pet food, or tomato sauce brand, there are generic vendors happy to produce your recipe and get it to store shelves. If you want to start an airline, there are used jets in the Arizona desert waiting to be leased and consultants eager to help you complete the government paperwork. If you want to start a bank, Infosys has a `bank in a box\’ suite of software called Finacle, providing all the functionality people need through an online service.

Craig Doidge. G. Andrew Karolyi, and René M. Stulz have an article forthcoming in the Journal of Financial Economics on \”The U.S. Listing Gap.\” (An earlier version is available as National Bureau of Economic Research Working Paper #21181, published May 2015).  They look at data from a number of different countries, and examine how the number of listed companies is typically correlated with various economic and institutional factors. They find that back in 1999, the number of listed firms in the US was roughly what one would expect, using international comparisons based on these factors, but since then the number of US publicly listed firms has fallen, so that now the number is less than half what one would predict based on international comparisons. They write in the abstract:

This “U.S. listing gap” is consistent with a decrease in the net benefit of a listing for U.S. firms. Since the listing peak in 1996, the propensity to be listed is lower for all firm size categories and industries, the new list rate is low, and the delist rate is high. The high delist rate accounts for 46% of the listing gap and the low new list rate for 54%. The high delist rate is explained by an unusually high rate of acquisitions of publicly listed firms.

Davis makes a similar argument, pointing out that the rate initial public offerings leading to new publicly listed companies has been low, while the number of delistings–often due to mergers between public companies–has been high.

People all over the world economy are in \”vulnerable\” jobs, which the International Labor Organization defines as \”own-account work and contributing family employment\”–that is, you\’re working for yourself or for your family, rather than for an employer. Not surprisingly, the desire to emigrate is high in many parts of the world, and seems to be on the rise. Here are two figures from the World Employment and Social Outlook: Trends 2017, published in January 2017 by the International Labour Organization.

For starters, here\’s a figure showing some employment patterns across the world. The first panel shows that the official unemployment rate doesn\’t look all that dramatically different across developed, emerging, and developing economies. The  big difference is the \”vulnerable\” employment rate, which is about 10% in developed economies, nearly half the workforce in emerging markets, and more than three-quarters of the workforce in developing countries. As ILO notes, \”these workers have less access to social dialogue and are less likely to exhibit job security, regular incomes and access to social protection than their wage and salaried counterparts.\”

The bottom panel shows the share of workers living in extreme or moderate poverty, which is defines as iving on less than US$3.10 per day. In emerging countries, this is nearly one-quarter of all workers; in developing countries, it\’s about two-thirds of all workers.

It\’s no surprise that many people who are staring these economic prospects in the face would be willing to relocate to another country. The bars and dots show the share of people in each region who answer that they would like to move to another country, in answer to the question: “Ideally, if you had the opportunity, would you like to move permanently to another country, or would you prefer to continue living in this country?” The bars are for the year 2009; the dots are for 2016. Thus, for regions of the world other than North America, Southern Asia, and Southeastern Asia, share of people who would be willing to move if they had a chance is typically more than 15-20%.

One of the most striking and troubling patterns in the US economy in recent decades is the \”declining labor share: that is, the pattern that the share of the value of output (in the nonfarm business sector) that goes to workers in the form of compensation, which includes benefits as well as wage and salary compensation, has been dropping. The labor share was typically in the range of 63-65% from the 1950s into the early 1970s. By the 1980s and 1990s, it was more often falling in the range of 61-63%. In the early 2000s, it fell below 60%, and since the end of the Great Recession in 2009 it has typically been between 56-58%.

This falling labor share is not some statistic recently created and promoted by partisan sources. It\’s calculated by the US Bureau of Labor Statistics, using a methodology that has remained more-or-less standard over the years. Two economists at the BLS, Michael D. Giandrea and Shawn A. Sprague, explain \”Estimating the Labor Share\” along with an overview of research findings on the issue in the February 2017 issue of the Monthly Labor Review.

As a starting point, here\’s their figure showing labor\’s share:

There seems to be a slow decline in the labor share from the 1960s though the 1990s, which is briefly interrupted by a dot-com bounce at the 1990s, and then turns into a faster decline in the early 2000s. This pattern is part of what lies behind some other much-discussed changes in the US economy. For example, average wage increases have not matched up average productivity gains in recent decades, which is because the share going to labor is declining. A smaller labor share also has implications for the distribution of overall income, because it implies that those who receive a greater share of their income from non-labor sources, like returns on investment, are going to do relatively well.

Giandrea and Sprague offer a nice concise overview of the main hypotheses for explaining the declining labor share. The theories include:

Cheaper investment goods, like computers, are leading firms to use more capital and less labor, which reduced the labor share. 

For example, the authors write: \”Karabarbounis and Neiman examined data from more than 50 countries and argue that the decline in the relative price of investment goods—in particular, computerized capital—has led firms to employ more capital and relatively less labor. They find that this shift has been responsible for approximately one-half of the observed decline in the labor share.\”

A related version of this theory is that while some new technologies should be viewed as substituting for labor, many other should be viewed as augmenting the productive power of labor. As the authors describe it: \”Lawrence writes that increases in labor-augmenting technical changes essentially increase the amount of labor provided by a given number of workers, thereby decreasing labor’s share of output.\”

The underlying assumptions about \”proprietor income\” are biasing the labor share calculations. 

The calculation of labor share involve adding compensation received by employees to \”proprietor income,\” which is the labor income received by those who run their own business. However, proprietor income is conceptually tough to measure, because someone who owns their own business can receive both \”labor income,\” as if the person was an employee of their own business, and \”capital income,\” as the owner of the business. In the real world, these two types of payments are jumbled together. To address this issue, the Bureau of Labor Statistics has assumed that the hourly labor compensation of proprietors is the same as that of employees. However, if the labor income of proprietors is actually rising over time, then this assumption means that the labor share is understated. One study finds that about one-third of the observed decline in labor share is due to this assumption that the hourly labor compensation of proprietors is the same as that of employees, rather than using an alternative method that tries to estimate the capital income of proprietors directly.

Increased imports of labor-intensive goods. 

A rise in imports of more labor-intensive goods means that production in the US economy will tend to be focused on less labor-intensive goods, which should tend to drive down the labor share. Teh authors cite work by  Elsby, Hobijn, and Şahin concerning \”an increased reliance on imported inputs used in domestic production, especially inputs that have labor-intensive production processes. These `offshored\’ inputs are typically produced in countries with lower labor costs, resulting in an overall reduction in the price of domestically produced final goods.\”

Different industries have different labor shares, so shifts in which industries are larger or smaller can affect labor share.

The authors write: \”Declines in durable goods manufacturing and nondurable goods manufacturing were responsible for 2.8 percentage points and 1.6 percentage points, respectively, of the decline in the overall labor share. Over the same period, several industries showed gains in their labor share—led by professional and business services, which contributed 2.5 percentage points, partially offsetting the decline in the overall labor share.

These explanations all have some plausibility, but it isn\’t clear to me that, taken together, they adequately explain the fall of more than four percentage points in labor share in the decade or so from the early 2000s (roughly 61%) to the years right after the Great Recession (just above 56%). The labor share does show some sign of rebounding in the last couple of year, and it will be interesting to see whether that turns out to be true bounce-back or a damp squib.

There is reason to be dubious, at least in theory, about  how kidnap insurance can work. After all, buying kidnap insurance only makes sense if you believe that, in the case of being kidnapped, it will increase your chance of being released. After all, if kidnappers know (or can figure out) that certain people have kidnap insurance, won\’t they tend to target such people? Also, if a kidnap victim has insurance  has insurance, won\’t the kidnappers demand the monetary equivalent of the earth, moon, and stars as a ransom? In these ways, might the presence of kidnap insurance increase the amount of kidnapping? On the other side, insurance companies have a profit motive to take actions that would reduce the number of kidnappings and the size of ransom payments. But if kidnappers make extraordinarily high demands and the insurance company pushes back, then it seems likely that negotiations over ransom will tend to break down–in which case the rationale for buying kidnap insurance in the first place would disappear. And how can kidnap insurance companies figure out a way to deal with the situation of kidnap victims who don\’t have insurance: if the representatives of those victims (who may in some cases be national governments) pay high ransoms, then it will be harder for the companies that sell kidnap insurance to keep other ransom demands down.

 Anja Shortland explores \”Governing kidnap for ransom: Lloyd\’s as a `private regime,\” in an article forthcoming in Governance magazine (the publisher, Wiley, has laudably made an \”Early View\” preprint version of the article available here). The short answer to the concerns over how kidnap insurance markets are likely to break down is that if all the companies providing that interact with each other, swap information, and follow common protocols, then kidnap insurance can function. For kidnap insurance, Lloyd\’s serves as a place where that interaction happens. Shortland writes (citations omitted):

Kidnapping is a major (if largely hidden) criminal market, with an estimated total turnover of up to US$1.5 billion a year. Transnational kidnaps, where the victims are foreign tourists, high-net-worth local residents insured by multinational insurers, and the employees of foreign enterprises, are scary one-off events for almost all families and most firms. Ransoming hostages is beset with trust and enforcement problems. Kidnappers seek to maximize ransoms and can employ extreme violence to pressurize stakeholders to reveal their assets. Law enforcement may prepare rescue operations while families (pretend to) negotiate a ransom. Any sequential payment process is potentially problematic, but ransom drops can fail even if both parties act in good faith. Kidnappers need not release (live) hostages after payment and may demand multiple ransoms. Yet, despite these considerable difficulties—and contrary to general perceptions based on newspaper headlines—the vast majority of transnational kidnap victims survive and most cases conclude relatively quickly.  …

Commercially, kidnap insurance is only viable under three (related) conditions. First, kidnaps should be nonviolent and detentions short—otherwise, individuals and firms withdraw from high-risk areas. Second, insurance premia must be affordable. Although insurance is only demanded if people are concerned about kidnapping, actual kidnaps must be rare, and ransoms affordable. Insurers struggle in kidnapping hotspots: High premia deter potential customers. … Third, ransoms and kidnap volumes must be predictable and premium income must cover (expected) losses. If kidnapping generates supernormal profits, more criminals enter the kidnap business. Premium ransoms quickly generate kidnapping booms. Insurers, therefore, have a common interest in ordering transactions and preventing ransom inflation. …

[K]idnap insurance is indeed controlled by a single enterprise: Lloyd\’s of London. Yet within Lloyd\’s there are around 20 international syndicates underwriting kidnap for ransom insurance. The syndicates compete for business according to clear protocols regarding how insurance contracts are structured, how information is (discreetly) exchanged, and how ransom negotiations are conducted. …

All kidnap insurance is underwritten or reinsured at Lloyd\’s. By setting clear parameters for commercial resolution, Lloyd\’s enables “fair” competition between different providers and avoids kidnap insurance being sold monopolistically. There is a protocol for insuring and resolving kidnaps, which emerged from the members themselves. Its use is mandatory and it (largely) prevents individual insurers from conferring externalities to the rest of the sector. The insurance market works smoothly because Lloyd\’s enables relevant case information to flow easily between insurers without compromising client confidentiality. Underwriters constantly interact with each other and individuals who do not pass (truthful) information to the Lloyd\’s insurance community or spread it beyond its confines can be ostracized.

 Shortland has compiled an array of evidence on kidnaps and ransoms from nations in Africa, Latin America, the Middle East, and elsewhere. But she also includes some specific anecdotes that tell the story of how these dynamics often work out:

The owner-manager of a Mexican company is abducted at gunpoint. A ransom of US$1 million is demanded with a threat of mutilating the hostage. His kidnap for ransom insurance is activated. A crisis response consultant coordinates a crisis management team with the hostage\’s brother as the only point of contact with the kidnappers. The consultant advises that previous cases in this area have settled for around US$100,000 and that “we have yet to actually receive an ear….” The brother makes an initial cash offer of US$40,000 citing liquidity problems at the firm. This is progressively raised, but in decreasing increments. After 16 days the wife tearfully pawns her engagement and wedding rings to bring the total offer to US$99,814. The kidnappers accept, the crisis responder manages the ransom drop, and the hostage is safely released.

An aid worker is kidnapped in Yemen. Unbeknownst to the family, the NGO\’s strategic risk management plan includes kidnap for ransom insurance. Within 24 hr, a crisis response specialist convenes a crisis management team of senior staff to conduct the negotiation with the kidnappers. He personally assures the family that “… everything will be done to ensure the timely and safe return of the hostage.” The NGO is advised to negotiate, but to stall and reject the ransom demand of US$500,000. A former SAS officer bases himself in war-torn Aden to open indirect negotiations with tribal elders. After 36 days, the local sheik indicates that the hostage could be released in exchange for a new generator for his village. The NGO agrees, the unharmed hostage is released, and the NGO operates undisturbed afterward.

If you  are teaching about insurance markets and need to spruce up your classroom with a fresh and vivid example of adverse selection, moral hazard, and potential spillovers, this topic and very readable article could be a useful resource.

The high costs of health care are not just an issue for the United States, but for countries all over the world. The OECD addresses the issue of How to Tackle Wasteful Health Care Spending in a January 2017 (which can be ordered or read online for free here). Here\’s a taste of the findings from the \”Foreword\”:

Across OECD countries, a significant share of health care system spending and activities are wasteful at best, and harm our health at worst. One in ten patients in OECD countries is unnecessarily harmed at the point of care. More than 10% of hospital expenditure is spent on correcting preventable medical mistakes or infections that people catch in hospitals. One in three babies is delivered by caesarean section, whereas medical indications suggest that C-section rates should be 15% at most. Meanwhile, the market penetration of generic pharmaceuticals – drugs with effects equivalent to those of branded products but typically sold at lower prices – ranges between 10-80% across OECD countries. And a third of OECD citizens consider the health sector to be corrupt or even extremely corrupt. At a time when public budgets are under pressure worldwide, it is alarming that around one-fifth of health expenditure makes no or minimal contribution to good health outcomes. … Actions to tackle waste are needed in the delivery of care, in the management of health services, and in the governance of health care systems. 

There\’s no magic bullet for reducing wasteful spending: instead, the strategy of the report is to pile up studies and examples until the sheer weight and number of opportunities to reduce health care spending is overwhelming. The report divides the evidence into three main categories: wasteful clinical care (care that either provides very low value or can even be counterproductive to health); operational waste (like paying excessively high prices or overusing expensive inputs like brand-name drugs); and governance-related waste (like ineffective or unnecessary administrative expenses). Here are a few words on each.

For example, Ian Forde and Carol Nader contribute a chapter on \”Producing the right health care:
Reducing low-value care and adverse events.\” They write (citations omitted):

Health care systems still struggle to quantify the true extent of low-value care, partly because of the lack of consensus on how to define it. …  A rare exception to the lack of consensus on defining low value concerns births by caesarean section. The internationally accepted consensus is that the ideal rate for caesarean sections is between 10% and 15% of all births. No OECD countries fall within this band … 

The tricky part of interpreting this figure is that administrative costs play a bigger role in private sector health insurance, and the the US has much more of its health insurance in the private sector than other countries. So if you put these together, it turns out that the US administrative expenses related to health insurance are substantially larger than in other countries.

It would of course be foolish to argue that all administrative costs are wasteful, and the report is far too sharp to make such a claim. But it is fair to say that one of the costs in the way that the US has chosen to organize its health care sector is higher administrative costs. And of course, the answer to high administrative costs often seems to be hiring another set of administrators to oversee utilization, promulgate rules for provision of care, double-check payments, and so on.

In  many cases, decisions about what medical care to receive and how to deliver that care fall into a gray area. It\’s often not 100% clear whether a certain procedure was needed, or not needed; not 100% clear that an error was made, or whether a reasonable judgment call was made; or whether a certain administrative act is wasteful, or whether it is reasonable oversight that reduces the risk of poor care and holds down costs. But the report makes a persuasive case that a substantial share of health care spending, not just in the US but in all advanced economies, is not doing much to improve health.

Agriculture in countries across sub-Saharan Africa is a large share of GDP, but a much larger share of jobs for many of the poorest people, in an economic context of widespread malnutrition. The OECD‑FAO Agricultural Outlook 2016‑2025 devotes a chapter to \”Agriculture in Sub-Saharan Africa: Prospects and challenges for the next decade.\” Here are some basic facts:

\”The Sub-Saharan Africa (SSA) region accounts for more than 950 million people, approximately 13% of the global population. By 2050, this share is projected to increase to almost 22% or 2.1 billion. Undernourishment has been a long-standing challenge, with uneven progress across the region. Despite being reduced from 33% in 1990-92 to 23% in 2014-16, the percentage of undernourishment remains the highest among developing regions. Owing to rapid population growth of 2.7% p.a. over the same period, the absolute number of undernourished people has increased by 44 million to reach 218 million. … 

\”The high contribution of the agricultural sector to GDP also underlines the limited diversification of most African economies. On average, agriculture contributes 15% of total GDP, however it ranges from below 3% in Botswana and South Africa to more than 50% in Chad … Agriculture employs more than half of the total labour force and within the rural population, provides a livelihood for multitudes of small-scale producers. Smallholder farms constitute approximately 80% of all farms in SSA and employ about 175 million people directly. … [R]ecent surveys suggest that agriculture is also the primary source of livelihood for 10% to 25% of urban households.\”

Economic development typically involves a process of rising productivity in agriculture, along with a shift to producing not just commodity products, but products with higher value-added. How might that process be encouraged and facilitated across sub-Saharan Africa? The report has lots of detail on specifics of cereals, pulses, fruits, livestock, dairy, fish, and so on. Here are some of the broader insights:

Output of agriculture in sub-Saharan Africa has more than doubled in the last 25 years.

However, \”[p]roduction growth in SSA has failed to keep pace with demand deriving from population and income growth, resulting in rising imports for food commodities such as wheat, rice and poultry. In many instances, import tariffs have been employed to support domestic producers, particularly relative to other producers outside the region.\”

In the past, output growth in African agriculture has tended to be driven by more land and more intense cropping, not by improvements in productivity or mechanisation.

\”The African model of agricultural growth differed significantly from that of Asia or South America. In Asia, growth was driven largely by intensification, whereas in South America, it was the result of significant improvement in labour productivity arising from mechanisation. By contrast, strong growth in SSA agricultural output has accrued predominantly from area expansion and intensification of cropping systems, as opposed to large-scale improvement in productivity. ,,, [P]roductivity per agricultural worker has improved by a factor of only 1.6 in Africa over the past 30 years, compared to 2.5 in Asia.\”

However, future major expansions in agricultural land seem unlikely. \”Much of the underutilised land is concentrated in relatively few countries and between one half and two thirds of surplus land is currently under forest cover. Conversion of such forest land to agriculture would come at considerable environmental cost.\” Thus, the projections for the next decade show only  modest rise in agricultural land. More intensive cropping on that land has natural limits, too.

What are some of the main priorities that could help African agriculture to evolve in the direction of higher productivity and higher value-added?

\”[A]n important uncertainty that will have a far ranging impact on production practices and productivity growth is the extent of concentration of agricultural land, which in turn will also be influenced by land tenure policies. Increasing concentration and commercialisation of medium-scale farmers could accelerate the rate of technology adoption, which has been fairly slow to date. Efficiency gains by a growing number of small, medium and large-scale farms linked into vertically integrated value chain with greater opportunity for access to credit, technology, extension services and off-take agreements, could have a meaningful impact on output levels in the coming decade. Commensurate development of upstream and downstream food sectors could increase the opportunities for non-farm income, which may in turn provide relatively productive small-scale producers with the capital to break through the barriers of subsistence agriculture into more commercialised medium-scale stature. … 

\”Arguably the greatest challenge facing the agricultural sector in SSA is weak infrastructure including transportation networks, access to energy, irrigation systems and stockholding facilities. Poor transportation networks limit access to markets, often exacerbate high levels of post-harvest losses and also inhibit efficient distribution of inputs such as seed and fertiliser. At the same time, it is an underlying factor in high food prices, as it raises the cost of both inputs and imported food products. Substantial differences in price levels between surplus and deficit regions suggest that investments able to reduce the cost of transportation would hold significant benefits to producers and consumers alike.\”

This chapter mentions issues like investing in agricultural research and development as well, but the main priorities emphasized are these issues of infrastructure, property rights, and production chains.

The enormous population boom coming in sub-Saharan Africa in the next several decades is one of those unseen demographic earthquakes that is going to shake up the world economy in all kinds of ways. For example, there will be enormous economic pressures for migration to the relatively nearby countries of the European Union.  The evolution of Africa\’s agriculture sector will play a major role in shaping the characteristics and consequences of its population boom.