He has a very good column on this topic today, here is one excerpt:

“The returns to growth are going to people in other countries, most notably China, and generally to people with high I.Q., no matter where they live,” said Tyler Cowen, a professor of economics at George Mason University and a contributor to the Economic View column in The New York Times. “I don’t really know how you could undermine this dynamic, short of wrecking the world. Trying to deny that logic is going to fail or worse, backfire.”

Mr. Cowen, who describes himself as a libertarian with a lowercase “l,” is the author of “Average Is Over: Powering America Beyond the Age of the Great Stagnation,” (Dutton, 2013), which posits that technology and globalization have essentially split the labor market in two: high and low earners. Far fewer stable jobs are left over in the middle to support what through much of the 20th century we called the middle class.

In his view, the defining challenge of our era is that workers in the bottom half of the distribution can no longer trust that their living standard will double every generation. “The right moral question is ‘are poor people rising to a higher standard of living?’ Inequality itself is the wrong thing to look at,” he told me. The real problem is slow growth.

“The best way to address rising inequality is to focus on increasing educational attainment,” Professor Mankiw said. Mr. Cowen adds other potentially useful policies, like expanding the earned-income tax credit or using urban policy to, say, make it easier for people who are not rich to live in San Francisco.

The full story is here, interesting throughout.

David Brooks writes:

But when the Muslim Brotherhood government fell, the military leaders cracked down. They sentenced hundreds of the Brotherhood’s leadership class to death. They also closed roughly 95 percent of the tunnels that connected Egypt to Gaza, where the Brotherhood’s offshoot, Hamas, had gained power.

As intended, the Egyptian move was economically devastating to Hamas. Hamas derived 40 percent of its tax revenue from tariffs on goods that flowed through those tunnels. One economist estimated the economic losses at $460 million a year, nearly a fifth of the Gazan G.D.P.

Hamas needed to end that blockade, but it couldn’t strike Egypt, so it struck Israel. If Hamas could emerge as the heroic fighter in a death match against the Jewish state, if Arab TV screens were filled with dead Palestinian civilians, then public outrage would force Egypt to lift the blockade. Civilian casualties were part of the point. When Mousa Abu Marzook, the deputy chief of the Hamas political bureau, dismissed a plea for a cease-fire, he asked a rhetorical question, “What are 200 martyrs compared with lifting the siege?”

The eminent Israeli journalist Avi Issacharoff summarized the strategy in The Times of Israel, “Make no mistake, Hamas remains committed to the destruction of Israel. But Hamas is firing rockets at Tel Aviv and sending terrorists through tunnels into southern Israel while aiming, in essence, at Cairo.”

The full column is here.

While European governments deny paying ransoms, an investigation by The New York Times found that Al Qaeda and its direct affiliates have earned at least $125 million in revenue from kidnappings since 2008, of which $66 million was paid just in the past year.

In various news releases and statements, the United States Treasury Department has cited ransom amounts that, taken together, put the total at around $165 million over the same period.

These payments were made almost exclusively by European governments, who funnel the money through a network of proxies, sometimes masking it as development aid, according to interviews conducted for this article with former hostages, negotiators, diplomats and government officials in 10 countries in Europe, Africa and the Middle East. The inner workings of the kidnapping business were also revealed in thousands of pages of internal Qaeda documents found by this reporter while on assignment for The Associated Press in northern Mali last year.

In its early years Al Qaeda received most of its money from deep-pocketed donors, but counterterrorism officials now believe the group finances the bulk of its recruitment, training and arms purchases from ransoms paid to free Europeans.

The full story is here. by Rukmini Callimachi.  Oh, and don’t forget this:

Negotiators take a reported 10 percent of the ransom, creating an incentive on both sides of the Mediterranean to increase the overall payout, according to former hostages and senior counterterrorism officials.

It turns out that Al Qaeda hardly ever executes prisoners any more.

For the pointer I thank Michael Rosenwald.

Assorted links

by on July 29, 2014 at 2:26 pm in Uncategorized | Permalink

1. Anti-surveillance make-up.

2. Textiles and the emergence of gender equality in China.

3. Excerpt from the new Murakami bookKnausgaard Bingo.  A gentle introduction to “the Dark Enlightenment.”

4. Principals see poverty.

5. Turning billboards into tiny houses for the homeless.

6. The Achilles Heel of Dodd-Frank.  And the new trend of tattoo removal.

These were the results:

1. People responded to first messages 44% more often.

2. “conversations went deeper”

3. Contact details were exchanged more quickly.

Furthermore:

When the photos were restored at 4PM, 2,200 people were in the middle of conversations that had started “blind”. Those conversations melted away.

That said, the people who actually used the “Blind Date App” if anything seemed slightly happier with their dates.  The full report from OKCupid is here.  Yet here is the combined chart drawn from when people score “looks” and “personality” separately.

By the way, I would never try to match you up with a book I fear you may not like, at least not without telling you or otherwise signaling that incompatibility in advance.

Israel’s major problem is that circumstances always change. Predicting the military capabilities of the Arab and Islamic worlds in 50 years is difficult. Most likely, they will not be weaker than they are today, and a strong argument can be made that at least several of their constituents will be stronger. If in 50 years some or all assume a hostile posture against Israel, Israel will be in trouble.

Time is not on Israel’s side. At some point, something will likely happen to weaken its position, while it is unlikely that anything will happen to strengthen its position. That normally would be an argument for entering negotiations, but the Palestinians will not negotiate a deal that would leave them weak and divided, and any deal that Israel could live with would do just that.

What we are seeing in Gaza is merely housekeeping, that is, each side trying to maintain its position. The Palestinians need to maintain solidarity for the long haul. The Israelis need to hold their strategic superiority as long as they can. But nothing lasts forever, and over time, the relative strength of Israel will decline. Meanwhile, the relative strength of the Palestinians may increase, though this isn’t certain.

Looking at the relative risks, making a high-risk deal with the Palestinians would seem prudent in the long run. But nations do not make decisions on such abstract calculations. Israel will bet on its ability to stay strong. From a political standpoint, it has no choice. The Palestinians will bet on the long game. They have no choice. And in the meantime, blood will periodically flow.

There is more here, of interest throughout, via Eric Reguly.

For the most part, no, although financial repression is an issue to look out for.  There is a new NBER Working Paper by Jens Hilscher, Alon Raviv, and Ricardo Reis which works through the numbers:

We propose and implement a method that provides quantitative estimates of the extent to which higher- than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for inflation at different horizons. The estimates suggest that it is unlikely that inflation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead inflation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.

“Financial repression will be a harbinger of inflation” is an underrated sentence.  Another is “short-term debt structure is the new gold standard,” as it limits the revenue gains from higher inflation.  There are ungated copies of the paper here.

Here is one way to boost the employment to population ratio, two birds with one stone you might say:

Feng’s 23 year-old son, “Xiao Feng” (小冯) started playing video games in high school. Through his years of playing various online games, he supposedly thought himself a master of Chinese online role playing games. According to his father, Xiao Feng had good grades in school, so they allowed him to play games; but when he couldn’t land a job they started looking into things. He, however, says he simply couldn’t find any work that he liked. Feng was annoyed that his son couldn’t even tough it out for three months at a software development company.

Unhappy with his son not finding a job, Feng decided to hire players in his son’s favorite online games to hunt down Xiao Feng. It is unknown where or how Feng found the in-game assassins—every one of the players he hired were stronger and higher leveled than Xiao Feng. Feng’s idea was that his son would get bored of playing games if he was killed every time he logged on, and that he would start putting more effort into getting a job.

The full story is here, and for the pointer I thank Michael Smiddy.

…trade typically favors the poor, who concentrate spending in more traded sectors.

That is from Pablo D. Fajgelbaum and Amit K. Khandelwal, the full paper is here.

Assorted links

by on July 28, 2014 at 1:11 pm in Uncategorized | Permalink

1. “One was falsely accused of being a moslem, and the other was falsely accused of not being a moslem.”

2. A measure of systemic risk for China.

3. A new and better way of using consumption risk to explain the global cross-section of returns? (pdf)

4. In praise of Lloyd Metzler.  And John Cochrane defends reverse repo and criticizes Sheila Bair.

5. A theory (highly speculative) about what Israel has been trying to prevent.

6. Ronald Coase and the Fabians agreed on policy toward the BBC, with new substantive material by Coase, previously unavailable.

Alan S. Blinder and Mark W. Watson have a useful unpacking of this question, here is the abstract summarizing their conclusions:

The U.S. economy has grown faster—and scored higher on many other macroeconomic metrics—when the President of the United States is a Democrat rather than a Republican. For many measures, including real GDP growth (on which we concentrate), the performance gap is both large and statistically significant, despite the fact that postwar history includes only 16 complete presidential terms. This paper asks why. The answer is not found in technical time series matters (such as differential trends or mean reversion), nor in systematically more expansionary monetary or fiscal policy under Democrats. Rather, it appears that the Democratic edge stems mainly from more benign oil shocks, superior TFP performance, a more favorable international environment, and perhaps more optimistic consumer expectations about the near-term future. Many other potential explanations are examined but fail to explain the partisan growth gap.

The NBER paper is here, an ungated version is here (pdf).

The Demand and Supply of Sex

by on July 28, 2014 at 4:25 am in History, Religion, Science | Permalink

Alternet: The idea that men are naturally more interested in sex than women is [so] ubiquitous that it’s difficult to imagine that people ever believed differently. And yet for most of Western history, from ancient Greece to beginning of the nineteenth century, women were assumed to be the sex-crazed porn fiends of their day. In one ancient Greek myth, Zeus and Hera argue about whether men or women enjoy sex more. They ask the prophet Tiresias, whom Hera had once transformed into a woman, to settle the debate. He answers, “if sexual pleasure were divided into ten parts, only one part would go to the man, and and nine parts to the woman.” Later, women were considered to be temptresses who inherited their treachery from Eve. Their sexual passion was seen as a sign of their inferior morality, reason and intellect, and justified tight control by husbands and fathers. Men, who were not so consumed with lust and who had superior abilities of self-control, were the gender more naturally suited to holding positions of power and influence.

Early twentieth-century physician and psychologist Havelock Ellis may have been the first to document the ideological change that had recently taken place. In his 1903 work Studies in the Psychology of Sex, he cites a laundry list of ancient and modern historical sources ranging from Europe to Greece, the Middle East to China, all of nearly the same mind about women’s greater sexual desire.

The ancient belief is consistent with the well known fact that in ancient times when a man went to a bordello the women would line up and bid for the right to sleep with him.

In other words, the ancients believed a lot of strange things at variance with the facts (which isn’t to say that the switch in belief and its timing isn’t of interest or that these kinds of beliefs no longer sway with the times). More at the link.

Questions that are rarely asked

by on July 28, 2014 at 2:44 am in Economics | Permalink

If monopsony power is an important feature of the labor market, and monopsony power should be prevalent when firms are bigger and therefore have a larger share of the local industry, then why do big firms pay more than small firms? The small mom and pops should be closest to operating in a competitive labor market and have little bargaining power, but they pay less. Maybe the productivity effects of big retailer outweigh the monopsony effect, but that just is another way of saying it’s not as an important feature of the market.

That is from Adam Ozimek.

There is a newly published paper by Paola Profeta, Simona Scabrosetti, and Stanley L. Winer.  The most concrete statement of the argument is that wealth is held disproportionately by the elderly, and they will oppose wealth taxes just as they oppose cuts in Medicare.  And since 1965 wealth taxation has in fact gone down in many Western countries, even though some theoretical arguments may militate in its favor.  The abstract of the paper is this:

We present an empirical model of wealth transfer taxation in the revenue systems of the G7 countries—Canada, France, Germany, Italy, Japan, the UK, and the US—over the period from 1965 to 2009. Our model emphasizes the influences of population aging and of the stock of household wealth in an explanation of the past and likely future of this tax source. Simulations with the model using U.N. demographic projections and projections of household wealth suggest that even in France and Germany where reliance on wealth transfer taxation has been increasing for part of the period studied, wealth transfer taxes can be expected to wither away as population aging deepens over the next two decades. Our results indicate that recent tax designs that rely upon the taxation of wealth transfers to preserve equity in the face of declining taxation of capital incomes may be, in this respect, politically infeasible for the foreseeable future. We conclude by using the case of wealth transfer taxation to raise the general question of the extent to which the consistency of a proposed reform with expected political equilibria ought to play a role in the design of a normative policy blueprint.

An ungated version is here.  For the pointer I thank the excellent Kevin Lewis.

Germany fact of the day

by on July 27, 2014 at 10:31 pm in Current Affairs, Economics, Law | Permalink

…in Germany, the government is rolling out a red carpet by simplifying immigration procedures, funding free language classes, even opening “welcome centers” for newcomers looking to carve out a piece of the German dream.

In the rankings of the globe’s most prosperous countries, this economic powerhouse of 82 million has now leapfrogged Canada, Britain, Italy and Spain to become the largest destination for immigrants after the United States, according to the Paris-based Organization for Economic Cooperation and Development.

The article is here.