Here is a new study from the New Zealand Productivity Commission, and here is the basic puzzle:

Based on its policy settings, the authors estimate that New Zealand’s GDP per capita should be 20% above the OECD average. But it is actually over 20% below average, making New Zealand a clear outlier. The size of the gap indicates an apparent “productivity paradox” that costs more than 40 cents in every dollar of output.

Here is one problem:

The increasing importance of global value chains – where production activities are spread across countries – may have worsened the impact of New Zealand’s geographic isolation on trade in goods.  Because global value chains typically require intensive interaction and just-in-time delivery, they tend to be regionally based. For New Zealand, international transportation costs for goods are about twice as high as in Europe. This reduces access to large markets and the scope for participation in global value chains , where the transfer of advanced technologies now often occurs.
More generally, the “gravity equation” — also known as distance — makes it harder for New Zealand to trade with the rest of the world.
Another big problem has to do with problems of underinvestment in knowledge-based capital:
Most of the rest of New Zealand’s productivity gap…appears to come from an underinvestment in knowledge-based capital. Knowledge-based capital encompasses a wide range of assets including product design, inter-firm networks, R&D and organisational know-how. Knowledge-based capital can be used simultaneously by more and more firms without re-incurring the initial development costs.  This generates increasing returns to scale – an important property that makes ideas and knowledge a key engine of productivity growth.  It can also be difficult to prevent others from using knowledge-based capital, an example of “spillovers” of knowledge and ideas between firms.
While comprehensive data on knowledge-based capital are currently not available, indications are that New Zealand ranks well in software investment and trademarks but very poorly in R&D and, to a lesser extent, patents. Indeed, R&D intensity in New Zealand – particularly business R&D – is among the lowest in the OECD. This not only reduces capacity for frontier innovation but also the ability of firms to absorb new ideas developed elsewhere, constraining technological catch-up.
In part, New Zealand suffers a low return on R&D due to its limited access to large markets, which reduces the likely payoff from the successful commercialisation of new ideas. New Zealand’s economic structure may also play a role. The industries in which New Zealand specialises typically have low R&D intensity. For instance, across countries, R&D in agriculture rarely exceeds 0.5% of value-add.

Here is a good FT summary blog post on the study.

I would have liked more comparison with the time when New Zealand was one of the world’s wealthiest nations per capita, and when, pre-1973, privileged access to British markets for Kiwi lamb and dairy was enough to maintain such high living standards.  And might we be reading a very different piece if the Chinese had a stronger taste for milk?

I recall the Michael Porter report from the 1990s, arguing that New Zealand did not have enough strong economic sectors which could lead to the accretion of cumulative advantages.

Overall, if there is any nation which should be aiming to double or triple its population, it is New Zealand.

Everyone reads One Hundred Years of Solitude and Love in the Time of Cholera but actually my favorites are some of the early short fiction and also News of a Kidnapping [Noticio de un Secuestro], plus the unfinished autobiography.

The NYT obituary is here.

The citation is here:

Matthew Gentzkow has made fundamental contributions to our understanding of the economic forces driving the creation of media products, the changing nature and role of media in the digital environment, and the effect of media on education and civic engagement.

Matt is at the Booth School of Business at the University of Chicago and there is much more at that link.  Here is Matt at  Matt’s well-known paper on ideological segregation, with Jesse Shapiro, is here (pdf).  Our class on the economics of the media at considers Matt’s work, for instance see this video on ideological segregation.

Here is A Fine Theorem on the Bayesian persuasion paper.

An excellent choice, of course, and hearty congratulations are in order.

From the comments

by on April 17, 2014 at 2:17 pm in Current Affairs, Law, Medicine | Permalink

This is from John B. Chilton:

For those who don’t click through this is what Tyler wrote:

“6. The exchanges will be mostly working by March 2014, but by then the risk pool will be dysfunctional. In the meantime, real net prices will creep up, if only through implicit rationing and restrictions on provider networks. The Obama administration will attempt to address this problem — unsuccessfully — through additional regulation.”

The simple answer to Christian’s query (“I’m curious how you stand now given current enrollment numbers and your previous prediction about a dysfunctional exchange.”) is that it’s not the enrollment numbers that matter, it’s the risk pool.

The jury’s out on the risk pool — lots of opinions out there on whether exchange premiums will go up for 2015.

Here is Ross Douthat on how will we know if Obamacare is working?  It is the best post on this debate so far.  He closes with this:

I’ll lay down this marker for the future: If, in 2023, the uninsured rate is where the C.B.O. currently projects or lower, health inflation’s five-year average is running below the post-World War II norm, and the trend in the age-adjusted mortality rate shows a positive alteration starting right about now, I will write a post (or send out a Singularity-wide transmission, maybe) entitled “I Was Wrong About Obamacare” — or, if he prefers, just “Ezra Klein Was Right.”

In tough times, do happy or sad songs top the charts? Do we prefer music that reflects our fears and hardships, or tunes that allow us to temporarily forget our troubles?

Newly published research suggests the answer varies dramatically by genre. Pop fans reflexively gravitate to music that mirrors their emotions, while country devotees go for escapism.

In an analysis of the most popular country songs over six decades, Jason Eastman and Terry Pettijohn II of Coastal Carolina University finds top hits are “lyrically more positive, musically upbeat, and use more happy-sounding major chords during difficult socioeconomic times.”

In contrast, previous research on best-selling pop songs found that, in times of societal stress, those numbers “are longer, slower, more lyrically meaningful, and in more somber-sounding keys.”

There is more here.  And here is the NYT article on how country music has gone totally mainstream.  After all, why not lower your systemic risk?  Is the higher cyclicality of on-country music due to what is possibly a younger demographic profile of listeners, including many students who may not yet be so worried about the state of the labor market?

Assorted links

by on April 17, 2014 at 11:52 am in Uncategorized | Permalink

1. Japan’s latest trend?

2. Young Americans are shunning the suburbs.

3. Will DNA-marker-assisted breeding outpace GMOs?

4. Profile of Alisha Holland.

5. Quick tour of British Isles accents (short video).  And are knighthoods bad for CEO performance?

6. Soft robots.

7. Worst video ad ever?  Or a really good ad? (Singapore, Philippines value)

The latest, uh, must-have appears to be positive pregnancy test results.

Women across the country are selling — and buying — them on Craigslist.

One post from Buffalo, New York, sums up the appeal for potential shoppers:

“Wanna get your boyfriend to finally pop the question? Play a trick on Mom, Dad or one of your friends? I really don’t care what you use it for.”

That particular test was going for the reasonable rate of $25 dollars. The tests in Texas seem to be slightly more expensive, at $30 a pop.

There is more here, via Marcela Veselková.

Understanding the Great Recession

by on April 17, 2014 at 7:23 am in Economics | Permalink

That is the new paper by Christiano, Eichenbaum, and Trabandt, and it is the most thorough study of the topic I know.  They arrive at this conclusion, the last sentence being of particular interest to me (emphasis added):

We argue that the vast bulk of movements in aggregate real economic activity during the Great Recession were due to financial frictions interacting with the zero lower bound. We reach this conclusion looking through the lens of a New Keynesian model in which firms face moderate degrees of price rigidities and no nominal rigidities in the wage setting process. Our model does a good job of accounting for the joint behavior of labor and goods markets, as well as inflation, during the Great Recession. According to the model the observed fall in total factor productivity and the rise in the cost of working capital played critical roles in accounting for the small size of the drop in inflation that occurred during the Great Recession.

You will note also the deemphasis on nominal wage rigidities.  The NBER version of the paper is here.  Related, ungated versions are here.

For rent and utilities to be considered affordable, they are supposed to take up no more than 30 percent of a household’s income. But that goal is increasingly unattainable for middle-income families as a tightening market pushes up rents ever faster, outrunning modest rises in pay.

The strain is not limited to the usual high-cost cities like New York and San Francisco. An analysis for The New York Times by Zillow, the real estate website, found 90 cities where the median rent — not including utilities — was more than 30 percent of the median gross income.

In Chicago, rent as a percentage of income has risen to 31 percent, from a historical average of 21 percent. In New Orleans, it has more than doubled, to 35 percent from 14 percent. Zillow calculated the historical average using data from 1985 to 2000.

Nationally, half of all renters are now spending more than 30 percent of their income on housing, according to a comprehensive Harvard study, up from 38 percent of renters in 2000.

That is from Shaila Dewan.  And Ryan Avent adds comment.

Vancouver’s cheapest house?

by on April 16, 2014 at 2:42 pm in Uncategorized | Permalink

A house listed for just under $600,000 in East Vancouver sold for $643,000 after its first weekend on the market.

According to the Huffington Post B.C., Vancouver’s cheapest listed single family home attracted large numbers to open houses, with two written offers pushing the final purchase price seven per cent over asking.

The price of the 100-year-old, 1,951-square-foot, three-bedroom, detached house at 2622 Clark Dr. was set low initially due to its smaller size and half lot site.

“It’s very rare, and that’s why all the excitement,” said RE/MAX realtor Mary Cleaver.

There is more here, and I thank Michelle Dawson for the pointer.

Assorted links

by on April 16, 2014 at 11:54 am in Uncategorized | Permalink

1. Do sex ratios affect bird behavior?  And moody lizards.

2. The Brazilian gun library.

3. The (homoerotic) culture that is Finland.  Note that the link is itself…homoerotic.  And the Indian Supreme Court recognizes transgender as a third gender.

4. Excellent Jesse Shapiro slides on how to give an applied micro talk (pdf).  It starts with: “Your audience does not care about your topic.  You have one or two slides to change their minds.”  And the short list for the Clark medal, Jesse is on it.

5. NYT profile of Peter Chang.

6. The problems of Singapore.

7. Scott Sumner on Larry Summers.

Let us start with “Teheran markets in everything”:

I think this happens only in Tehran. Some people get paid to walk behind your car, so the traffic cameras can not capture your plate number when you enter the restricted traffic areas!

The photo alas does not reproduce, and that is from a fascinating Quora discussion on “what is a job that exists only in your country?”

The Vietnamese water bag carriers are impressive (you get into a plastic bag and they pull you across a river).  Here is some Indian arbitrage:

Disabled people get 50-75% concession on train ticket from Indian Railways. Additionally, they can take one person as escort who will be entitled to the same amount of concession.

Some disabled people earn their living with this scheme. Their only job is travelling between different cities and taking Strangers (who actually want to go to some city) as escorts. These strangers pay 75% of the fare to the disabled people. Thus Stranger saves money, Disabled person earns profit.

This also was new to me:

In China, when there are big traffic jams, you can pay a fee to have two people on a motorcycle drive to your vehicle, where one takes your place at the steering wheel, and the other will take you wherever you need to go on his motorcycle.

Nor had I known about the “pet food taster” (Simon and Marks) or the costumes of those Australian Meter Maids.  India is prominent on the list but Mexico makes an appearance as well:

In Mexico we have men who make a living by discharging electricity into the bodies of consenting drunk people (who gladly pay a couple of dollars for the experience). These men usually hang around bars and areas where nightlife abounds and yell “toques toques!”(“discharges, discharges!”) while banging the two metallic handles of their contraption together. The device is a battery-operated metal box with a voltage regulator that can increase the intensity of the electrical current depending on how much the customer can take. It is generally accepted by Mexicans that a bit of electricity will increase your buzz…

It costs about $2-$4 per jolt.  Maybe the real winner should be this one:

United States of America: Man who walks on the moon (currently on hiatus).

I believe I owe thanks to somebody on Twitter, alas I can no longer recall to whom.

I enjoyed this piece by Sarah Turcotte:

Tour caddies are well-compensated. The winning looper this week will pocket a nice $144,000. But they earn that 10 percent. A long-running joke among caddies is that there are only three rules: Show up, keep up and shut up. Truth is, their jobs might be tougher than the players’. Well maybe not quite, but it’s close. Caddies are part pack mule, part meteorologist, part psychologist (BIG part), part mathematician, part scapegoat, part psychic and sometimes even part bartender. When I played in the LPGA’s Michelob Ultra Open a few years back, a veteran caddie suggested to the man on my bag a little Drambuie and Sprite to calm my nerves. (Full disclosure: He did have a water bottle filled with Chardonnay available at all times. We never used it, but it was a comfort knowing it was there.)

Caddies do not appear to do very much, yet most people could not hold a job as an effective caddy for a good golf professional.  This, in a nutshell, is why the transition toward the new service sector jobs will not run smoothly for everybody.

And even if you really do make the grade, “…job security for caddies is non-existent.”

Department of Uh-Oh

by on April 16, 2014 at 12:31 am in Data Source, Economics, Medicine | Permalink

A four-year slowdown in health spending growth could be coming to an end.

Americans used more medical care in 2013 as the economy recovered, new reports show. Federal data suggests that health care spending is now growing just as quickly as it was prior to the recession.

“We’re at the highest level of growth since the slowdown began,” Paul Hughes-Cromwick, a senior health economist at the Altarum Institute, which tracks health spending. “You have to go back seven years to see growth like this.”

There is more here, from Sarah Kliff.  Note that is only from one quarter, however.  Kevin Drum remains more sanguine.

Here is what I had to say:

Tyler Cowen, a professor of economics at George Mason University, argues that the very definitions of labor and capital are arbitrary. Instead, he looks around the world to find the relatively scarce factors of production and finds two: natural resources, which are dwindling, and good ideas, which can reach larger markets than ever before.

If you possess one of those, then you will reap most of the rewards of growth. If you don’t, you will not.

There you go, you can tell I studied with Ludwig Lachmann.  The article is interesting throughout.  Here is a slightly earlier post, “Joseph Nocera calls me on the phone.”