A conference on Gordon Tullock’s economic, political, and legal research is being held in Founders Hall of George Mason’s Arlington Campus on Friday October 2 and Saturday October 3, 2015.

TullockGordon Tullock was one of the founders of the field of research that came to be called Public Choice.  He was coauthor of one of the most important books in the field, the Calculus of Consent (with Nobel Prize winner James Buchanan) and the first to point out the losses associated with rent seeking. He was also among the first researchers to use economic tools to analyze the law, trial procedures, and judicial systems. His research includes theories of the origin of the state and constitutional governance, the impossibility of revolution, legal systems, government failure, and the economics of science itself. Beyond his own research he was an institution builder. He was the founding editor of the journal Public Choice, a premiere outlet for research on public choice. He helped to launch the Public Choice Society and the European Public Choice Society. He is among the most influential economists never to win the Nobel Prize.

Looks like an excellent conference and event. More information and RSVP here.

Sosa is a gynecological teaching associate, and she holds one of modern medicine’s most awkward jobs, using her body to guide med students through some of its most delicate, dreaded exams. Every week, she lies back for dozens of the next medical generation’s first pelvic and breast screenings, steering gloved fingers through the mysteries of her own anatomy and relaying the in-depth feedback they’ll need out in the wild.

She is not, in the traditional sense, a medical professional herself: A 31-year-old theater actor, she has also worked recent jobs at a bakery and Barnes & Noble. Yet what she lacks in faculty prestige, she and her compatriots — including a squad of male urological teaching associates, who teach genital and prostate exams — make up for in humor, candor and endurance. For nervous students, she is like an enthusiastic surgical dummy, awake through the operation and cheering them on…

In New York and Los Angeles, the simulated patients are often actors; here, in eastern Virginia, they are part-time or former professors, baristas, retail workers and house spouses, all contract workers paid by the session, and not extraordinarily so. Gliva-McConvey, the program director, said wages were confidential but added, “All I can say is, we don’t pay them enough.”

Vocabulary becomes hugely important to avoiding clumsy wording. Teachers are taught to neutralize sexual language — it’s a “table,” not a “bed”; a “drape,” not a “sheet” — and cut back on awkward phrases: Say “footrests” instead of the too-equestrian “stirrups”; “lots of pressure” instead of “this is going to hurt.” Students aren’t supposed to “grab,” “stick in” or “pull out” anything, though in the moment, instructor Kelene Williams said with a laugh, “sometimes neutral doesn’t come out.”

The article is…unsettling…throughout, kudos to Drew Harwell, and I thank M. for the pointer.

I worry about the carry trade

by on September 4, 2015 at 12:09 am in Current Affairs, Economics | Permalink

Remember, in a global economy with multiple currencies, or an economy with lots of price variation, the notion of a single “real interest rate” is tricky.  The standard Fisherian story implies real interest rate near-neutrality across a wide set of expected monetary policy decisions.  Say expected inflation goes up, the nominal interest rate goes up, and the real rate stays constant, except for a small liquidity effect.

But that story will not apply across the board.  If, for instance, you live and consume in Jakarta, and you do not hold a PPP theory of the exchange rate, as indeed you should not, well, borrowing in dollars just got more expensive in real terms (with complicated qualifiers depending on forward rates which in reality don’t predict future currency movements so well).  Or if the Fed lowers nominal rates, your real borrowing rate goes down, maybe by more or less the same percentage amount as the nominal rate went down for the Americans.

And if those Indonesians are optimistic about the performance of their own currency vis-a-vis the U.S. dollar, crikey! — their current real interest rates from dollar borrowing appear to be very low indeed.  And if we are considering the individuals who hold disproportionate shares of non-USD currencies, almost by definition they are overly optimistic about the non-USD currencies.

And there are yet further complications which the nice weather today prevents me from outlining (what if those Indonesians are the marginal investors and they push around the market price for the Americans?)

All of which makes the Fed’s job much tougher.  Here is the latest from Bloomberg:

Since the 2008 financial crisis, companies across emerging markets have been borrowing dollars and converting them into local currencies as part of a massive carry trade. This practice has helped U.S. dollar shadow banking go global as the effects of near-zero U.S. interest rates seep into all corners of the world economy.

That’s the main finding of a new report released Thursday by the Bank for International Settlements, an institution in Basel, Switzerland, known as the central bank for central banks.

The paper, co-authored by Valentina Bruno, a finance professor at American University, and BIS Economic Adviser and Head of Research Hyun Song Shin, serves as a follow-up to a report released by the bank in January that found firms outside the U.S. have borrowed $9 trillion in U.S. dollars, up from $6 trillion before the global financial crisis.

To be sure, we do not know how harmful these practices might be, or not.  Here is FT coverage of the same:

By doing so companies become shadow banks, financial intermediaries moving dollars into local economies. Note, manufacturers do not have to explicitly act like hedge fund managers. Simply depositing funds with a local bank will help it to extend credit to other customers, while buying local commercial paper provides funds to domestic businesses.

The realisation prompts further questions. If it becomes more expensive to borrow in dollars, because say China fears prompt less dollar lending, will the corporate carry trade stop? Will it matter if it does?

I simply wish to reiterate that, no matter how many times commentators cite the low rate of price inflation, there are risks on both sides of the Fed’s forthcoming monetary policy decision.

Here is my much earlier post on monetary policy and the carry trade.  Beware the too-rapid acceptance of the strict Fisherian equation!  Once again, we do not live in a representative agent world and furthermore the multiplicity of agents speak a variety of languages and use a variety of currencies.

America’s hottest author apparently has been thinking about economics, as you can see on page one:

It wasn’t as if Pip felt good about making fun of her mother.  But their dealings were all tainted by moral hazard, a useful phrase she’d learned in college economics.

Or later:

“America put too much carbon into the atmosphere, renewable energy could help with that, federal and state governments were forever devising new tax inducements, the utilities were indifferent-to-moderately-­enthusiastic about greening their image, a gratifyingly non-negligible percentage of California households and businesses were willing to pay a premium for cleaner electricity, and this premium, multiplied by many thousands and added to the money flowing from Washington and Sacramento, minus the money that went to the companies that actually made or installed stuff, was enough to pay 15 salaries at Renewable Solutions and placate its venture-capitalist backers.”

There is even some Widow’s Cruse:

Their theory was that the technology-driven gains in productivity and the resulting loss of manufacturing jobs would inevitably result in better wealth distribution, including generous payments to most of the population for doing nothing, when Capital realized that it could not afford to pauperize the consumers who bought its robot-made products.

Ted Gioia liked it.  Laura Miller liked it.  Here is a useful Christian Lorentzen review.  Here is Colm Toibin’s take:

“Purity,” in other words, depends more on story than on style. It can seem, in fact, as though there is a battle going on in the novel between the slackness of its style and the amount of sharp detail and careful noticing, especially regarding Pip’s role as a damaged innocent in need of rescue and redemption. Most of the time, there is something oddly invisible about the style, so that you do not notice it as the plot moves from event to event.

Overall, after sixty-one pages of reading, I would not dissuade the eager, nor would I attempt to convert the skeptical.  I am closer to the latter group, as the main theme, described by Sam Tanenhaus as “the false idolatry of the digital age,” is too close to my daily life to interest me further; it’s Raskolnikov, Captain Ahab, and Colonel Kurtz for me.  It is Beauty is a Wound, by Eka Kurniawan from Indonesia, that I am waiting for: “There is much dying in the novel.”

Thursday assorted links

by on September 3, 2015 at 12:38 pm in Uncategorized | Permalink

1. What Tobin really thought.

2. Is most of the world’s biodiversity underground?  Paper is here.

3. And you thought gdp revisions were tough.  At least this one was in the upward direction.  By a lot.

4. Preschool for robots.  And “The Cotsbot robot, which has a vision system, is designed to seek out starfish and give them a lethal injection.

5. Bill Easterly’s development economics reading list (pdf).

6. Is Singapore the future of language?

7. Is a private blockchain just a database?

On the Bargaining Power of Workers

by on September 3, 2015 at 7:25 am in Economics | Permalink

Over at Econlog Bryan Caplan responds to a Scott Alexander post (written several years ago under another name thus a pseudonym of a nom de plume) on the bargaining power of workers. Bryan makes excellent points. I want to focus on two larger issues. Many people look at big firms and little workers and they see an imbalance and can’t imagine how the firms are not in control. Even framing the issue as the bargaining power of workers makes it seem like a David and Goliath battle.

The firm v. worker framing focuses attention on the threat to the worker of unemployment. From this perspective it seems as if the firm can “bargain” the worker down to the least the worker is willing to accept and, given the threat of unemployment, that isn’t much.

The firm versus worker framing, however, obscures a point that Tyler and I make in Modern Principles: Buyers don’t compete against sellers, buyers compete against other buyers (and sellers compete against other sellers). Firms buy labor and they are competing primarily not against workers but against other firms. Firms versus Firms! Now that is a real battle!

When firms are thinking about wages what they are thinking about is the threat from other firms. When a firm is hiring it knows it must pay the worker at least as much as other firms are willing to pay.

The other-firm threat is very real. In fact, more often that not when a worker-firm match breaks up, it’s the worker who leaves, usually for another firm (the hot, young startup?), rather than the firm who leaves the worker with a layoff. The figure below shows data on quits divided by layoffs. Most of the time quits exceed layoffs (even during some recessions) with only brief windows during severe recessions when quits are fewer than layoffs.

quitstolayoffs

Using the firms versus firms frame it becomes clear that rather than a battle between firms and workers, firms are a worker’s best friend. To be sure, it’s the firms that the workers don’t work for who are their best friend not necessarily the firm they do work for! Indeed, another problem with the firm versus worker frame is that in their eagerness to win the “battle” with their firm workers sometimes support policies which harm all firms, including their friends. A case of cutting off the nose to spite the face. Remember, firms are buyers and sellers benefit when there are lots of rich, successful buyers.

Hat tip: Justin Merrill.

Addendum: Bargaining can be important when the hiring firm is willing to pay the worker considerably more than are other firms–this can happen for highly-skilled workers with specific talents and unique firm-complementarities. Note that in these cases it’s more a case of the worker “bargaining up” to grab surplus than the firm bargaining down. For workers as a group, this kind of surplus is gravy. But there’s nothing wrong with gravy so if this applies to you do read Getting to Yes and learn to bargain well.

newfoundland

Of course the United States should take in more Syrians, but we are not the only laggard:

Of the 4 million Syrians who have fled their country since the war began, including hundreds of thousands who have poured into Europe, the number who have been resettled in Britain could fit on a single London Underground train — with plenty of seats to spare.

Just 216 Syrian refugees have qualified for the government’s official relocation program, according to data released last week.

By the way, not long ago there were over 1.2 million Iraqi refugees in Syria (pdf), I wonder how they figure in all the recent numbers we are seeing.

Before the 1920s, large numbers of Syrians (Syrian-Lebanese) emigrated to Brazil, most of all to Sao Paulo, with a second and smaller wave coming in the 1950s.  As of March:

Since 2013 when Brazil opened its doors, 1,740 Syrian refugees have been registered in the country – far more than in the US.

But still that is not many compared to the preexisting total.  According to the above link, Brazil has about 15 million Arabs and about three million people of Syrian descent, and by virtually all accounts this connection has benefited the rest of Brazil too, not just the migrants.

Here is my earlier post Will Latin America Stay Underpopulated for Another Century?  And can you guess where that top photo is from?

In academia, no, but in the real world perhaps:

Electricity generated by US wind farms fell 6 per cent in the first half of the year even as the nation expanded wind generation capacity by 9 per cent, Energy Information Administration records show.

The reason was some of the softest air currents in 40 years, cutting power sales from wind farms to utilities…

“We never anticipated a drop-off in the wind resource as we have witnessed over the past six months,” David Crane, chief executive of power producer NRG Energy, told analysts last month…

Standard and Poor’s put a negative outlook on bonds issued by two wind farm companies as their revenues tracked wind speeds lower.

“Although our current expectation is that the wind resource will revert back to historical averages, at this time it is unclear when that will happen,” the rating agency said.

Wind generated 4.4 per cent of US electricity last year, up from 0.4 per cent a decade earlier. But this year US wind plants’ “capacity factor” has averaged just a third of their total generating capacity, down from 38 per cent in 2014. EIA noted that slightly slower wind speeds can reduce output by a disproportionately large amount.

The Gregory Meyer FT article is here.  Here are some earlier articles on wind speeds slowing down, some of them appear to be reputable.  According to this recent article, for parts of 2015 wind speeds may be 20-50 percent below average in the American West.  Caveat emptor, but food for thought.

Marketing Pork

by on September 2, 2015 at 1:10 pm in Economics | Permalink

Here is a great little story by Danny Vinik from Politico’s The Agenda on how so-called marketing boards are surreptitiously turned into lobbying boards.

Industries with a large number of producers find it difficult to organize collectively because of the free rider problem. Mostly, that’s a good thing because it prevents cartels. Collective action, however, could also be used to perform research or marketing that’s good for the industry as a whole but too expensive for any small subset of producers. In theory, therefore, some type of collective action could be beneficial and in agriculture governments have created checkoff programs which force producers to pay a tax to fund collective goods.

pigsCheckoffs exist for dairy farmers, mushroom producers, and even popcorn processors. Critics say they violate economic freedom and distort the market; big corporate farmers, they allege, easily find ways to influence the boards and siphon the money off to push their own causes.

“In one sense, it’s a classic case of the larger producers are the more powerful political forces within these organizations,” said Dan Glickman, the Agriculture Secretary at the end of the Clinton administration who largely supports checkoff programs.

For the unhappy hog farmers, the current problem started with the 1985 Pork Law, when Congress set up the National Pork Board and required all farmers to contribute. Today, hog farmers must hand over 40 cents out of every $100 in revenue from pork sales. The board uses the money, totaling nearly $100 million a year, to conduct research and promote the pork industry, but is not allowed to lobby.

But as Adam Smith said “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Quite so. And in this case by creating a National Pork Board the government is providing the meeting hall and paying for the conversation. According to the law, the money from the checkoff program isn’t supposed to go for lobbying but here is where the story gets interesting.

You may recall the slogan, “Pork: The Other White Meat.” The slogan hasn’t been used for years but the National Pork Board still pays $3 million a year every year for the rights. Why would the Pork Board pay millions for an unused slogan? The key is who they are paying. The slogan is owned by National Pork Producers Council. The NPPC is a lobby group and you won’t be surprised to know that it is closely connected with the NPB (having once even shared offices).

…critics say the two groups have never been as separate as the law calls for, and now are essentially colluding through a deal that lets the Pork Board funnel money to the NPCC by assigning an absurdly inflated value to the “other white meat” slogan; the money then goes to promote the NPPC’s lobbying agenda.

A neat trick. The story is also a good object lesson in Mancur Olson’s thesis about how special interest groups grow in power over time, slowly choking off innovation as they cartelize the economy.

Wednesday assorted links

by on September 2, 2015 at 12:11 pm in Uncategorized | Permalink

1. The Chinese local debt situation is getting worse.

2. Will self-driving cars have windscreen wipers?  And are the cars too safe and hesitant?

3. First fully automated restaurant, hope you like quinoa.

4. Has the U.S. economy become less interest rate-sensitive? (pdf)

5. Why Christopher Balding doesn’t believe Chinese gdp figures.  And Europe, according to China, funny, recommended.

6. Eduardo Porter on Mexican migration.

There seems to be genuine uncertainty about what the Fed will do, or not do, this September.

At a superficial glance, the good news scenario is if the Fed’s decision doesn’t matter much for the markets.  Woe unto you if your economy is so fragile that a quarter point or so in the short rate, mixed in with some cheap talk, were to matter so much.

So if at first prices were to stay steady, following any Fed decision, then equities should jump in price.  That is the “no news is good news” theory, so to speak.  It’s a better state of the world if it is common knowledge that the Fed’s actions don’t matter so much in a particular setting.

What if prices jump right away, following a Fed decision?  The market might then see that price jumps rely on the Fed making good decisions, whatever those might be.  The risk premium might then go up.  It is even possible that prices should on net fall in response to that, but in any case it seems that some further price adjustment is in order, perhaps in the downward direction.  (That ought to come rapidly.)

Most generally, it seems the initial price move, in response to the Fed’s choice, cannot itself be correct, but that first price move must itself induce further price movements.  The price move in response to the Fed’s decision is the economy telling us how much it is relying on the Fed, which right now we do not know.

Maybe the Fed would like to know this too.

I’ve covered these ideas before a number of times, but now the Chinese slowdown is common knowledge, so let’s put them in one place:

1. You can’t invest 45-50 percent of your gdp very well forever.  It’s amazing how long China’s run has been, but it is over.  The quality of their marginal investments is now low and that means their growth rate will be much lower too.  The low hanging fruit is gone, at least for the time being.  They might later on resurrect some new low-hanging fruit through institutional reform, we’ll see if they end up stuck in the middle income trap but right now they are at a sharp discontinuity.

2. There is no simple way to switch to a “consumption-driven” economy without the growth rate both falling and staying permanently lower.  Structural reforms are absolutely called for, but in this context they represent a surrender to a lower rate of growth and thus they are especially difficult to pull off in a politically sustainable manner.

3. The Chinese have been growing at ten percent or nearly ten percent for about thirty-five years.  More than a generation of Chinese is used to treating the risk premium as if they don’t have to worry about it.  I shudder to think what economic and also political decisions have been made on that basis.

4. The Chinese economic response to the dwindling of their low-hanging fruit is sharp rather than smooth because there is a sudden revision of expectations, as people realize the risk premium isn’t zero after all.  And seeing the others see that causes the new set of beliefs to spread pretty quickly.  That is a very painful process for a macroeconomy, and it is not well captured by simple AD-AS analysis, although of course it has implications for both AD and AS.

5. I would not so quickly infer that the Chinese government is stupid when it comes to economics.  It is true their actions do not correspond to what professional economists would recommend.  But they are painted into a very unpleasant corner and have lots of interest groups to feed.  Their observed response is possibly explained by some kind of public choice-constrained, nested game, internal conflict-driven seventh-best response.  They were smart a few years ago, and they are still smart now.  That doesn’t mean they will end up doing a good job.

6. Avoid mood affiliation!  You can be a pessimist about the Chinese recession now without being a) a pessimist about China in the longer run, or b) a pessimist about Chinese political stability.  Those are separate albeit related questions, and you are not forced to have the same mood response to all of them.

Keep this primer on hand at all times.  It is more useful than trying to twist the C + I + G tautology into a series of causal statements about China.

Her new The Silo Effect: The Peril of Expertise and the Promise of Breaking Down Barriers is a tour de force of economics, anthropology, Pierre Bourdieu, management theory, and anecdotes about Sony and Facebook and UBS and Cleveland Clinic.

It turns out Gillian wrote her doctoral thesis in anthropology on Islamic marriage practices in Tajikistan.

In Mississippi, 7.3% of all workers in the state are manufacturing workers who make less than $15 an hour. Losing many of these jobs would have a serious negative impact on the state.

Because of its sample size, the CPS is of more limited use for small geographies. However, there is a relatively large number of observations for Los Angeles County, CA. Almost 400,000 manufacturing workers live in the county, and 55% of them make less than $15 an hour. Many of these workers will be affected by $15 minimum wages that have been approved for the City of Los Angeles and the unincorporated parts of Los Angeles County.

This data suggest that if the minimum wage was increased to $15 an hour across the U.S., it would impact a significant number of manufacturing workers, with some states being hit harder than others. This reflects the fact that lifting the minimum wage to $15 an hour would not just be quantitatively larger than previous U.S. experience, but qualitatively different in that it would affect a different set of workers and industries. Leisure/hospitality and retail make up 54% of the workers who make less than $8 an hour, but only 34% of those making less than $15 an hour. As the minimum wage rises it affects other sectors. For manufacturing, at least, the effect is likely to be greater.

That is from Adam Ozimek, more at the link.

I will be doing a Conversations with Tyler with Luigi next Wednesday, eight days from now (do sign up!).  He is a brilliant and multi-faceted economist, and an Italian — what should I ask him?