In the United States, if I am trying to accelerate and enter the road from say a parking lot, I try to minimize the number of misleading movements my car might make.  I don’t “edge out” just for the heck of it, for fear this may spook the other drivers and cause them to suddenly switch lanes in a dangerous (for them) fashion.  Furthermore, I might misjudge and move the car out too far into the lane, leading to a collision.

In Lagos, it seems the practice is to announce your intentions with as many little forward “nudges” of your car as possible.  They seem to mean “I am thinking of going sometime soon.”

After enough such nudges, the oncoming cars either go far away into the left lane, or perhaps they stop for you altogether and let you go.  Or maybe they slow down a bit and you decide you can beat them and so you pull into the lane.

A higher discount rate (for entering the road) is one way to rationalize this behavior, but in a variety of other contexts I have noticed Nigerians who were not massively upset at being ever so slightly late.  So might there be some other explanation?

Maybe there is greater variability in rational assumptions about the other drivers.  You may not know how well their cars can brake, accelerate, and perhaps their lane-switching plans and propensities are harder to predict.  So by nudging your car out in successive bits, you may be “taking the temperature” of the other drivers on the road.  Keep in mind that they, too, may not have a good sense of how well your car can accelerate (furthermore some of the vehicles are tuks-tuks, not cars).  A willingness to make more nudges may be telling the other drivers that your engine is pretty good and your will is strong.

So they read your nudging pattern, and you draw inferences from their lane-switching and stopping responses.  Ex post (one hopes), everyone has a better sense of what the other cars and drivers are capable of doing.

Of course this is speculative.  The key point here is that greater variability in potential performance creates a case for sending more and smaller bits of the signal in advance.

Wednesday assorted links

by on January 4, 2017 at 12:11 pm in Uncategorized | Permalink

Hyperinflation in Zimbabwe!

by on January 4, 2017 at 7:25 am in Uncategorized | Permalink

The latest section of our Principles of Macroeconomics class covers Inflation and Quantity Theory of Money and the first video in that section is on the incredible story of hyperinflation in Zimbabwe. Check it out! And don’t forget that all our videos pair beautifully with Modern Principles of Economics our exciting textbook!

That is the topic of my latest Bloomberg column, here is one excerpt:

The reports of Boko Haram and terror killings are well known, and they reflect the interlocking and sometimes deadly combinations of regional, religious, sectarian and ethnic identities in the country, not to mention extreme inequalities of income and opportunity. Yet Nigeria has about 180 million people and is larger than Texas. The violence is the most frequently reported story in the West, but the underlying reality is far more complex and shows positive features.

For instance, the city of Lagos is in many regards a marvel of religious tolerance. Nigeria is about 50 percent Muslim and 40 percent Christian, and the area surrounding Lagos is also highly mixed in terms of religion. That may sound like a recipe for trouble, but in matters of religion Lagos is almost entirely peaceful. Religious intermarriage is common and usually not problematic, as is the case in many (not all) other parts of Nigeria as well. Many top Nigerian politicians have married outside their religion, kept two separate religions in the family and enjoyed continued political success.

Consider the scale and speed of this achievement. Lagos, with a population of about 20 million, is larger than many countries. It is the most commercially oriented part of Nigeria, and it grew so large only in the last few decades, as it attracted entrepreneurially minded people from many parts of Nigeria and other African countries. By one estimate, 85 new residents arrive every hour. That may sound chaotic, but in essence Nigeria has in a few decades created an almost entirely new, country-sized city built on the ideals and practice of religious tolerance. The current president, Muhammadu Buhari, is a Muslim who was supported in his election by many Christian leaders, on the grounds that he would fight corruption more effectively. His running mate served as a Pentecostal pastor.

There are several other points, including an assessment of on the ground safety (better than you might think), do read the whole thing.

That may not be in the cards anytime soon, but at least it has surfaced as a potential option, along with EU membership, to be considered by Icelandic referendum.  Matt Yglesias questions whether this might be a mistake.

I see the creation of the euro as a big mistake, and in general I favor flexible exchange rates, but on this question there is a plausible case for Iceland joining up with the euro.

First, Iceland cannot defend itself and does not want to rely only on the United States.  European Union membership helps out on that front, and the EU has at least been claiming that new members also will be euro-using members.  Fishing rights are a big deal for Iceland, and maybe the country will decide it does better within EU structures.

Second, and more to the macroeconomic point, very small countries do not always do well with floating rates.  For instance, no one suggests that every household should have its own currency.  Iceland, with a population of about 330,000, may be small enough to make this comparison at least a bit apt.  Keep in mind the biggest exports are tourism, fish, and aluminum products, not much else.  Using the euro may help tourism a bit, while I suspect the fisheries and aluminum smelters can get by with a mix of a) not employing that much labor anyway, and b) making wages more flexible if need be, rather than needing a floating rate to stay competitive.

Another way to put the point is this: floating rates are most useful as a protection against nominal shocks, not real shocks.  But when an economy is sufficiently small, real shocks tend to be the more significant problem because usually there is not so much diversification.

On the macro front, so what if Iceland becomes the north Atlantic version of how Panama, Ecuador, and El Salvador stand pegged with respect to the U.S. dollar?  Those economies have various troubles, but fixed exchange rates are fairly low on those lists.

Not long ago, the Icelandic economy was hit by a massive shock from capital flight, which in turn stemmed from a banking and real estate collapse.  Capital controls were imposed, in part because the flow of funds whiplash was so large relative to the size of the Icelandic economy.  Relying on continental, euro-denominated banking from Dutch, German, and other suppliers may well be a better option.  A true EU banking union, if one ever comes, would be better for Iceland yet.  In other words, in the eurozone Iceland might be better protected against at least some real shocks.

I don’t have a firm view here, so it is fine to think of my conclusion for Iceland as agnostic.  I ‘m just saying you can be a euro skeptic, and favor Icelandic euro membership, without fear of contradiction.  The European countries that should not be in the eurozone, such as Italy and Greece, are much bigger than Iceland and are also more economically diversified.

iceland

I receive requests for recommendations in this area fairly often.  I don’t feel I am qualified to judge the outputs, but here are three that have come across my path as of late and seem to me very good:

Connor Boyack, illustrated by Elijah Stanfield, The Tuttle Twins and The Road to Surfdom.  Recommended ages 5-11.

I.M. Lerner and Catherine L. Osornio, The Secret Under the Staircase, and The Hidden Entrance.  Here the age range seems to be higher, maybe 10-12?  I feel I could have read them younger than that, however.

Someone should write a bibliographic essay on the books in this category.  What else can you recommend?

Tuesday assorted links

by on January 3, 2017 at 12:00 pm in Uncategorized | Permalink

This was decided earlier in the year:

All computers used officially by public servants in Singapore will be cut off from the Internet from May next year, in an unprecedented move to tighten security.

A memo is going out to all government agencies, ministries and statutory boards here about the Internet blockade a year from now, The Straits Times has learnt.

There are some 100,000 computers in use by the public service and all of them will be affected.

“The Singapore Government regularly reviews our IT measures to make our network more secure,” a spokesman for the Infocomm Development Authority (IDA) said when contacted.

The move is aimed at plugging potential leaks from work e-mail and shared documents amid heightened security threats.

Trials started with some employees within the IDA – the lead agency for this exercise – as early as April. Web surfing can be done only on the employees’ personal tablets or mobile phones as these devices do not have access to government e-mail systems. Dedicated Internet terminals have been issued to those who need them for work.

The Straits Times understands that public servants will be allowed to forward work e-mails to their private accounts, if they need to.

Here is the article.  Here is Catherine Rampell on Trump and cybersecurity, she seems to be critical of what is possibly a Trump idea to have a White House without computers (without internet?).  That to me seems the only good procedural/bureaucratic idea I have heard from the incoming Trump administration.  Note that the government in Singapore is one of the smartest, forward-looking, and sophisticated in the world.  On this they are ahead of the curve (by the way I write more on the broader question here in my forthcoming The Complacent Class).

From the WSJ:

Mr. Lighthizer has three decades of experience arguing for punitive tariffs on overseas companies. Given Mr. Trump’s deep skepticism of trade agreements such as the North American Free Trade Agreement, or Nafta, Mr. Lighthizer probably wouldn’t prioritize major new trade agreements, at least in the early days of the administration, according to people following Mr. Trump’s trade plans.

Still, Mr. Lighthizer has negotiating experience from his time in the Reagan administration, and if confirmed, he would take the lead in talks that could culminate in the bilateral deals that Mr. Trump’s team prefers—a departure, for instance, from President Barack Obama’s focus on a 12-nation Pacific deal.

Mr. Trump’s advisers have said his pick for Commerce secretary—billionaire investor Wilbur Ross—also could play a leading role on trade policy, as well as economist Peter Navarro, who will lead a new trade council at the Trump White House.

Here is Lighthizer’s 2008 NYT Op-Ed criticizing free trade.  None of this is good news.

I’ve been wondering about this question, and the internet isn’t much help (here is background from Jonathan Adler if you are starting from scratch).  Say a foreign power pays money to my publisher, agent, or speaker’s bureau — does that count?  Intuitively, I would think so, even though the income is legally domestic.  But then it seems the clause is very difficult to define.  If I own an overseas business, or receive overseas royalties, or sell intellectual property overseas, must I trace the identity of every customer?  What if Angela Merkel bought a copy of one of my books translated into German?  Am I then, through the medium of royalties, taking money from a foreign power?  What if the Chinese government bought up a million copies of one of my books?  What if it is a Chinese shell company of unknown origins (they are common), which might be either state-owned or private, did so?  Or what the company is private, but itself owned by a state-owned company?  49 percent?  51 percent?  What if a state-owned Chinese company makes a large grant to a private individual, who then buys a million copies of a book?  Don’t library systems buy books, and aren’t most of them state-owned?

This line about China struck me:

Print sales, dominated by the country’s 580 state-owned publishing houses, are now worth 44 billion yuan ($7 billion).

Of course much of the income for the Obamas, during his time in office, came from royalties from book sales, including abroad and also in China.  For instance:

A large portion of the royalties came from sales overseas, an indication of the president’s popularity abroad. The tax return indicates that $1.6 million of the total book income was taxable in “various” foreign countries.

I cannot trace whether Obama’s Chinese publishers are state-owned companies, but most likely they are.  Some of the other Obama foreign publishers might be too.  Does that count as a violation of the clause?  Presumably there are foreign translations of some of Trump’s books too, or there will be.  JFK also had published books before he became president, and likely there were foreign rights sales of those too.

I get that this is a smaller issue, quantitatively speaking, than Trump’s foreign ventures, though foreign income was significant for President Obama in 2009 as a share of the total.  (Not to mention the difference in transparency or other possible differences in administration…I am not not not not not saying this is equivalence, so please don’t throw your weak-minded, question-begging, mood affiliated doctrine of “false equivalence” at me!)  And besides, the constitutional clause doesn’t say the payment has to be a large one.  At the time, I don’t recall anyone, myself included, thinking this was a violation of the emoluments clause, so again I am back to wondering what the clause exactly means.  In any case, you can imagine critics charging, rightly or wrongly, that a president might try too hard to be popular abroad.

Is selling intellectual property somehow different than selling hotel rooms?  Or is the unorthodox, Putin-oriented, “in your face” side of the Trump administration why we are framing the cases so differently?

“To whom” does a payment really go anyway?  And what is a “foreign power”?  What is a “state-owned company”?  The people at the WTO will tell you such questions can make your head spin.

china-books

Is the future equilibrium simply that future American presidents can be bribed through the sale of book and other IP rights, combined with aggressive “marketing” from foreign state-owned companies?  I would gladly learn more about this topic, and I am afraid that this year I am about to.

Derek Parfit has passed away

by on January 2, 2017 at 2:05 pm in Books, Philosophy | Permalink

Here is the account from Daily Nous.  Here is Parfit on why there is a universe.  Here is the famed New Yorker profile of Parfit, amazing if you have not already read it.  Here is Parfit on death, a major preoccupation in his writings, even if it did not always come through.  And more on death here.  Of all the people I have met, no one comes closer to embodying the ideal of a questioning philosopher than did Derek Parfit.  He was relentless in the best sense of the word, and unforgettable.  And Reasons and Persons is one of the books that has influenced me most.

The answer may surprise you, here is part of an abstract from Derek D. Headey:

In this article World Bank poverty estimates are used to systematically test the relationship between changes in poverty and exogenous changes in real domestic food prices. We uncover indicative evidence that increases in food prices are associated with reductions in poverty, not increases. We empirically explain this result in terms of relatively strong agricultural supply and wage responses to food price increases, and the fact that the majority of the world’s poor still heavily rely on agriculture or agriculture-related activities to earn a living.

Here is the full (gated) article, via the excellent Kevin Lewis.

Monday assorted links

by on January 2, 2017 at 11:51 am in Uncategorized | Permalink

1. Anthony Atkinson has passed away.  And a nice tribute and overview.

2. The UK needs Parliament back.

3. Economics books for 2017.

4. “When I controlled for the age of the respondent and the urbanization of the zip code, it turned out that virtually all the effect on the bubble score is driven by the percentage of adults with a college degree in the zip code where the respondent lived. The zip code’s median family income had almost no independent effect. Another interesting finding: the zip code where people lived at age 10 had a modestly larger effect on their bubble scores than their current zip code.” Link here from Charles Murray.  He also lists the bubbliest parts of America, please note that Washington, D.C. does not do as badly as you might think, we are not yet so far gone.

5. One perspective on Russia’s strategy.

6. On the nostalgic WWII technologies of Rogue One.

7. The Andrew Reynolds claim that North Carolina is not a democracy any more is fake news and based on bogosity.  Note that North Carolina, in the rankings of that study, is far from the least democratic U.S. state, furthermore North Korea is rated as having “moderate” electoral integrity.

I wanted to like this book, as I am keen to discover new perspectives on the arts, even if I don’t agree with them.  “False” books on the arts often illuminate the artworks themselves, sometimes more than do the “true” treatments.  Yet this work I had a tough time making sense of.  I will confess to having read only about a third of it, and browsed some more.  As I understand the book’s thesis, the plasticity of the brain, as it changes across historical eras, helps explain changes in the content of the visual arts.  But I view brain plasticity as a generally overrated idea, evidence for such claims about the arts is hard to come by (how much do we know about differences in brains in ancient Athens for instance? And how good is our theory linking brain differences to artistic content?), and most of all neuroscience itself so often disappears during the book’s exposition.  Even the Amazon summary indicates the rather mysterious nature of the book’s main argument.  It is a beautifully produced volume, and it feels important, and maybe there is finally scope for a book of this kind, but…

Here is a (very) negative review by Matthew Rampley.  Some of you may nonetheless find this interesting.  It is a big ideas book, and perhaps it can prompt you to write a more clearly defined big ideas book in response.

Here is a long post on those topics, worth a careful read and it contains many good points.  But, Nobel Prize in trade or not, I am not convinced by all of it.  On his first topic, I do not think a Trump administration will give us a pure VAT, rather I think the final outcome (if there is one), will indeed be more like a tax on (some) imports and various subsidies to exports; Jared Bernstein suggests the same.  On the second topic, given that the U.S. dollar is a global reserve currency, I don’t think it has to be the case for model-embedded reasons that “…reduced openness to trade should also inhibit capital flows”, though it is likely the case for broader political economy reasons (if they mess around with your trade, you are more afraid to invest your capital).  Krugman’s claim “…trade deficits are always a temporary phenomenon”, while technically correct, represents an odd, sudden conversion (reconversion?) to Don Boudreauxism, and a return to the kind of 2006 analysis/worries that predicted America would see a dollar crisis.  Yes, temporary along some time horizon.  But is the American trade deficit, which by now has persisted for decades, best and most usefully modeled as something due to flip because of an intertemporal budget constraint?  Maybe.  But maybe not, as that view has performed extremely poorly in predicting the value of the dollar.  (Most of all, it depends on the country, but it’s least likely to be true for America.  And what about “dark matter“?)  On most days, you’ll find more takers on the intertemporal budget constraint approach to macro over at Minnesota, and no I don’t think the “different models for different questions” trope gets one out of this box.  At the macro level, that constraint either kicks in or it doesn’t.  Finally, toward the end of the post there is an overestimate of how much an implied dollar depreciation is likely to persist in the forward rate in a manner that would limit investment from abroad.  For the USD, predicted movements as embedded in the futures or forward rate are generally quite small relative to movements due to “news”; of course the same isn’t always true for Argentina and other disaster-prone countries.

Here are comments from Brad DeLong.