Assorted links

by on January 29, 2015 at 5:01 am in Uncategorized | Permalink

1. The new Bloomberg business and economics site.  What do you all think?  And The Guardian will sell ads based on time.

2. Janos Kornai reflects on post-reform Hungary (pdf), important to note that history can run backwards.

3. WaPo on my hypothesis that northern Virginia is becoming two different places.  I liked this piece, but the front page sub-headline (“…Fairfax will fail”), probably not from the author, isn’t descriptive of my views.  I don’t want Fairfax to become like Arlington, and in many ways I prefer the future of Fairfax, although admittedly it will be “less Millenial.”  Perhaps the WaPo sub-headline writers did not consult the MR vocabulary guide, under which “dumpy” usually means “good.”

4. Republish of my earlier post that Andrew Sullivan has been the most influential public intellectual of the last twenty-five years.

5. theworstthingsforsale.com.  And here is a relevant Amazon product, truly markets in everything.  Do you get the point?  “They’ve monetized an Amazon technicality,” Anna writes to me.

In addition to my earlier pick of Chile, I now must nominate Sweden and Norway for this honor.  Both are wonderful countries, and in absolute terms very likely to remain strong performers.  But I think a good deal of that old Nordic magic is slipping away, and this has become more evident in the last few years.

Let’s start with Sweden and maybe I’ll get to Norway another time:

1. The average product of their education system seems to have declined rather rapidly, as measured by test scores.  On PISA they have gone from #4 to #21.

2. Arguably the basic Swedish economic social model is inconsistent with their level of immigration, and I don’t seem them switching to a different economic and social model anytime soon.  You can be pro-immigration, and still not think Sweden is honing in on the right mix of domestic policy and immigration policy.

3. Swedish manufacturing seems to be deindustrializing at a faster than expected pace.  And some of Sweden’s most successful sectors are exposed to a lot of competition from emerging markets, in particular because they rely heavily on engineering talent.  Sweden also has a significant presence in financial services, but they are not an obvious future winner in that area.  And do timber, hydropower, and iron — their main commodity exports — have such a promising future?  There are probably few disasters lurking here, but lots of question marks.

4. Sweden doesn’t seem to have a lot of low-hanging fruit left.  Female participation in the labor force already is high, and they already have done lots of liberalization, privatization, and deregulation.  It is not clear where the next generation of policy improvements will come from.  The McKinsey report recommends “increasing government productivity” as a major source of potential gains, but that is hardly easy, even for the Swedes.

5. The Swedish central bank seems to have scored an “own goal” by engaging in premature tightening, coming out of the earlier recession.  They’ll make much of that up over time, but still it is a sign the country has lost some mojo.

6. Sweden’s household to debt ratio is about 170%, one of the highest in the world.  This is not only troubling in its own right, but arguably it is a sign debt is being used to make up for a slow accumulation of underlying economic deficiencies, as was the case in the United States.  Furthermore “Four in 10 mortgage borrowers in Sweden are not paying off their debt, according to data collected by Reuters, and those that are repaying the principal are doing so at a rate that would on average take nearly a century.”  They are probably still in the middle of a housing bubble.

7. There is an erosion of support for mainstream Swedish political parties.  You don’t have to approve of those parties to see this as a symptom of a very slight underlying political rot setting in.  The “extreme Right” party has seen a rapid rise in support.

8. A rampaging Putin probably won’t harm them directly, but still recent Russian events raise geopolitical risk in their neighborhood.

Don’t worry, the Swedes will do fine, but they have arrived at officially overrated status.  I was more sanguine about their prospects a few years ago than I am today and I would not invest in their stock market.  If you wish to count their pluses however, they still have a very good system of government, a strong ethic of trust and cooperation, a good ability to change course when necessary, high productivity, a strong presence in information technology, a wonderful export capacity, low public debt, and first-rate proficiency in English, among other virtues.

That all said, the Swedish currency is actually down against the euro since the beginning of the year.

*Schubert’s Winter Journey*

by on January 28, 2015 at 3:53 pm in Books, History, Music | Permalink

The author is Ian Bostridge and the subtitle is Anatomy of an Obsession, and of course it focuses on Die Winterreise.  This is the first book published this year to make it into my 2015 “best of the year list.”  Here is one good review of the book.

Assorted links

by on January 28, 2015 at 1:25 pm in Uncategorized | Permalink

1. How do pot dealers operate in a blizzard?

2. John Cochrane on why the Swiss broke their peg.  And John on the new unemployment insurance results.

3. The Russian “blockade diet” will indeed help you lose weight.  And The Haggis Lollipop.  And China police suspended after dining on enormous salamander.

4. The top one percent, state-by state; for a given income it is easiest to break into the top in New Mexico, toughest in Connecticut.

5. UK museums are hiding away art works depicting The Prophet Muhammad.

6. How good was Maria Callas?  And Paul Krugman on the game of chicken unfolding in Greece (and Germany).

7. How Raghu Rajan is reshaping economic debate in India.

8. The guy behind Bounded Gaps Between Primes: “No one who knows him thinks that he is suited to a tenure-track position.”

Should economists shy away from teaching hard topics for fear of offending someone’s moral sensibilities? Should we restrict ourselves to the market for ice cream? The tagline of our textbook, Modern Principles, is See the Invisible Hand: Understand Your World. We take understand your world seriously and we teach topics that other textbooks do not such as the economics of network goods like Facebook or the economics of tying and bundling which students see regularly when they purchase cell phones and minutes and Cable TV.

The world, however, is not always a pleasant place and so we also discuss modern slavery and how the concept of the elasticity of supply can help us to evaluate programs like slave redemption. It’s important to teach this material with seriousness, it’s not an idle exercise in “freakonomics,” and it’s possible to misstep but we think students need to see economics as a vital discipline that can be used to make the world a better place, even if only one small step at a time.

Here is Tyler on elasticity and the economics of slave redemption. This is from the elasticity section of our course at MRUniversity, released today along with taxes and subsidies. You can also find a lengthier treatment with more details in Modern Principles.

My visit to Auschwitz

by on January 28, 2015 at 7:09 am in History, Travel | Permalink

I went once, might that have been 2004?  It was after a Unesco conference in Warsaw and from a hotel room in Krakow.  I have the recollection that Auschwitz had a terrible stench, though I doubt if it actually did.  Each journey that we take has a single place and experience at its emotional center, and no trek with a stop in Auschwitz can have any emotional center other than Auschwitz itself.  The rest of that trip is more or less forgotten.

The place was full of Germans walking the halls, confused and wailing.  The Jews were more somber.

The new far-left government in Greece dropped a bombshell on its first day in office by abjuring an EU statement on Russia.

There is more here, via Anders Aslund.  I guess they don’t have any other European issues they need to spend their political capital on…

“Dear Tyler,

I read with obvious interest your post (and the paper itself) about the endogeneity of institutions. Leaving aside my issues with the IV literature, I decided to take the bait regarding Jeff Sachs’ challenge to, “Go back to 1960 and choose any measure of institutional quality you want. Then see how well it predicts cross-national growth since then.”

Ok, I will.

The Economic Freedom of the World (EFW) index was first published in the mid 1990s, and the first year of data is 1970. So I’ll have to start in 1970 instead of 1960.

Here is a regression with growth from 1970-2010 on the lhs, and EFW and GDP per capita in 1970 on the rhs.

Growth1970-2010 = -1.62 + 0.75*EFW1970 – 0.13* GDPPC1970 R^2=0.18
(2.90) (3.17)

This regression adds the change in EFW from 1970-1980 to the rhs.

Growth1970-2010 = -1.69 + 0.84*EFW1970 + 1.00*chEFW70-80 – 0.15*GDPPC1970 R^2=0.32
(3.54) (3.39) (3.86)

A one-unit higher EFW score in 1970 correlates to 0.84 percentage points in higher annual growth over the next 40 years. A one unit EFW score improvement during the first decade, 1970 to 1980, correlates to a 1.00 percentage point higher annual growth rate over the 40 years.

I don’t know if that satisfies Jeff Sachs’ challenge, but it works for me.

Looking forward, I’ve constructed a back-of-the-envelope indicator that combines each country’s EFW rating in 2000 and with its change from 2000-2010. The top 20 (combined highest level & most positive change) versus the bottom 20 (combine lowest level & most negative change) countries are:

Top 20 – Bottom 20
Hong Kong – Haiti
Romania – Cameroon
Rwanda – Senegal
Singapore – Guinea-Bissau
Bulgaria – Mali
Cyprus – Bolivia
Unit. Arab Em. – Algeria
Chile – Guyana
Mauritius – Gabon
Lithuania – Ecuador
Slovak Rep – Burundi
Albania – Cote d’Ivoire
Jordan – Chad
Switzerland – Togo
Bahamas – Congo, Rep. Of
Malta – Central Afr. Rep.
Taiwan – Argentina
Korea, South – Myanmar
Finland – Zimbabwe
Estonia – Venezuela

I’m willing to bet anyone $100 (up to 10 people) that the Top 20 group will outgrow the Bottom 20 group by at least 1 full percentage point per year (on average) over the the next 20 year period (2015-2035).

Bob”

Yanis Varoufakis

by on January 27, 2015 at 6:46 pm in Current Affairs, Economics, Uncategorized | Permalink

He is an economist, taught last year at UT Austin, and is now the new finance minister of Greece.  You can find him here on scholar.google.com.  And here is his 2011 proposal for overcoming the euro crisis, another version of that here (pdf).  Here is his blog post on the Scottish Enlightenment.  Previously he was working as an economist for Valve, a video game company.  Here is Yanis on EconTalk with Russ Roberts.  The discussion of Greece and the eurozone starts at about 48:22.

His blog is here, he claims he will continue blogging:

The time to put up or shut up has, I have been told, arrived. My plan is to defy such advice. To continue blogging here even though it is normally considered irresponsible for a Finance Minister to indulge in such crass forms of communication. Naturally, my blog posts will become more infrequent and shorter. But I do hope they compensate with juicier views, comments and insights.

Here is a good Telegraph profile of the man.  Here is his Wikipedia page, and here is one excerpt:

In 2005/6, Varoufakis travelled extensively with artist Danae Stratou along seven dividing lines around the world (in Palestine, Ethiopia-Eritrea, Kosovo, Belfast, Cyprus, Kashmir and the US-Mexico border). Stratou produced the installation CUT: 7 dividing lines, while Varoufakis wrote texts that then became a political-economic account of these divisions, entitled The Globalising Wall. In 2010 Stratou and Varoufakis founded the project Vital Space.

Stay tuned, this will be fun.

American Sniper is one of the best anti-war movies I have seen, ever.  But it shows the sniper-assassin, and his killing, to be sexy, and to be regarded as sexy by women, while the rest of war is dull and stupid.  (Even the two enemy snipers are quite attractive and fantastic figures, and there is a deliberate parallel between the family life of the Syrian sniper and the American protagonist.  The klutziness of the non-assassin soldiers limited how many African-Americans and Hispanics they were willing to cast in those roles, as it is easiest to make white guys look crass in this way without causing offense.)  By making the attractions of war palpable, this film disturbs and confuses people and also occasions some of the worst critical reviews I have read.  It also, by understanding and then dissecting the attractions of blood lust, becomes a quite convincing anti-war movie, if you doubt this spend a few months studying The Iliad.  (By the way, Clint Eastwood, the director and producer, describes the movie as anti-war.)  The murder scenes create an almost unbearable tension, the sandstorm is a metaphor for our collective fog, and they had the stones to opt for the emotional overkill of four rather than just three tours of duty.  Iraq is presented as a hopeless wasteland with nothing of value or relevance to the United States, and at the end of the story America proves its own worst enemy.  It is not clear who ever gets over having killed and fought in a war (can anything else be so gripping?…neither family life nor sex…), even when appearances suggest a kind of normality has returned.  The generational cycle is in any case replenished.  I say A or A+, both as a movie and as a Rorschach test.

Two Days, One Night has some of the worst economics I have seen in a movie, ever.  It would be brilliant as a kind of Randian (or for that matter Keynesian) meta-critique of the screwed up nature of Belgian labor markets and social norms, and most of all a critique of the inability of the Belgian intelligentsia to understand this, except it is not.  It is meant as a straight-up plea for sympathy for the victim and as such it fails miserably, even though as a movie it embodies reasonably good production values.  Everything in the workplace of this solar power company is zero-sum across the workers and we never see why.  The protagonist campaigns to get her job back, but never asks or even considers how she might improve her productivity or attitude, asking only on the basis of need.  (And she is turned down only on the basis of need.)  At one point her employer states the zero marginal product hypothesis quite precisely, something like “when you took time off, we saw that sixteen people could do the work of seventeen.”  She never asks if there might be some other way she could contribute — but she does need the money — nor does the notion of a better job match somewhere else rear its head.  The depictions of financial hardship confuse wealth and income, basic survival and discretionary spending.  The rave reviews this movie has received represent yet another Rorschach test and one which virtually every commentator seems to have failed.

Assorted links

by on January 27, 2015 at 12:05 pm in Uncategorized | Permalink

1. “Between 2007 and 2013, the millennial population of Arlington grew by 82 percent — more than anywhere else in the country.”  And are big cities too small?

2. Even at Fox News more employees donate money to the Democrats.

3. Toyota now to pay on the basis of performance rather than seniority.

4. Flows vs. stocks in Greece.  And the Syriza coalition partner isn’t nice, nor does the selection send a good signal.

5. Can online education bend the cost curve?  And UCLA students on global warming.

6. Why do some women prefer submissive men?

7. RortyBomb on unemployment benefits.  Scott Sumner comments too.

8. A short video on the life of Sir Arthur Lewis.

In Defense of the Company Town

by on January 27, 2015 at 7:25 am in Economics, History | Permalink

In my EconTalk with Russ Roberts on proprietary cities I only mentioned company towns in passing. Even the great Milton Friedman got company towns wrong, however, so it’s worthwhile spending a little time to dispel some myths.

Take company stores. Why did mining companies often own the town store? The standard answer: to squeeze every nickel from the workers so they would “owe their soul to the company store.” But that lyrical argument makes no sense and the truth is actually closer to the opposite.

The mining towns were isolated geographically but they weren’t isolated from the national labor market. The number of workers in these towns moved up and down in response to the price of coal and the workers often traveled long-distances to work in the mines, sometimes from other states or other countries. The company towns were isolated not because the workers couldn’t get out but because few people wanted to live where coal was abundant. As a result, workers had to be enticed to travel to and to live in these towns. Oil rigs are similarly isolated today and once on board the workers have nowhere to go but the company restaurant, the company theater and the company gym but that hardly means that the workers are exploited.

Since the mine workers weren’t isolated from the national labor market they had to be paid wages consistent with wages elsewhere and indeed on an hourly basis wages in mining were higher than in manufacturing (not surprising since these jobs were riskier). Moreover, workers weren’t dumb and so–just like workers today–they would consider the price of housing and the price of goods in these towns so see how far their wages would take them. All of this suggests that workers would not be fooled by high wages and really high prices at the company store that nullified those wages. And indeed, prices at company stores were not especially high and were similar to prices at independent stores in similar locations.

It was possible to find examples of a good at a particular company store which had a markedly higher price than at a particular independent store but this was cherry picking, (I am reminded of the exam question about two rival supermarkets both of which advertise “the average consumer at our store would pay 20% more if they shopped at our competitor.” The question asks how it can be possible that both stores are telling the truth.) Comparing identical baskets, prices at company stores were not higher than at similar independent stores.

I said that the traditional story actually gets things backward. We can see how by asking why the companies owned the stores. First, independent stores had to bear a lot of risk because they would be selling in a local economy that was dependent on a single mine. That risk was better born by the mining firm itself because it knew more about coal and fluctuations in the price of coal, its own plans, the time the mine would be expected to be open and so forth. Thus, it was cheaper for the mines to own the stores than for independents to own the stores.

Second, if an independent store did open they would have a monopoly and would want to charge a monopoly price but–and this is key–the higher the price charged by the independent store the higher the wages the coal mine would have to pay to compensate the workers. Thus monopoly independents would be bad for the workers but they would also be bad for the owners of the mine. If the mine owned the store, however, they would have a greater incentive than the independent store to lower prices because that meant they could save on wages. Overall, both workers and mine owners would be better off with company stores (A classic example of the double marginalization problem).

Similar arguments apply to company owned housing. On the one hand, this did mean that during a lengthy strike the firm could evict the workers from their housing. On the other hand, would you want to buy a house in an isolated town dependent on a single industry? Would you want to own a major asset that was likely to fall in price at the same time that you were likely to lose your job? Probably not. Rental housing meant that workers had the freedom to leave town easily when better work opportunities were available elsewhere – i.e., it meant that the workers were less isolated from the national labor market than they would be if they owned their homes and were tied down to a single place and a single employer. Moreover, the fact that the housing was company owned meant lower prices than if the housing was owned by an independent monopoly developer, the most relevant alternative (again because of the double marginalization problem).

The bottom line is that far from being an example of the abuse of monopoly power, the company town was an effort to constrain monopoly power.

References: The best source for an accurate view of the company towns in the mining industry is Price Fishback’s Soft Coal, Hard Choices: The Economic Welfare of Bituminous Coal Miners, 1890-1930. The book is based on a series of papers (JSTOR).

The company towns built by the mines weren’t especially pretty but some of the other company towns, especially those which employed high-skilled workers, were professionally designed by the leading architects of the day and they came with parks, playgrounds, retail areas, public transportation, churches and a variety of services. In essence, these company towns were doing what Google does today, competing for workers with amenities. Margaret Crawford’s book, Building the Workingman’s Paradise, is an interesting history showing how company towns pioneered a number of architectural and planning innovations that later found there way into many post World War II home developments.

Table 1 shows that adding estimates from the literature suggests that economists have already explained 177% of the rise in average BMI.

That is from this new NBER paper, by Courtemanche, Pinkston, Ruhm, and Wehby, which seems to be one of the most careful studies to date.  They do it right and then offer some more commonsensical conclusions:

A growing literature examines the effects of economic variables on obesity, typically focusing on only one or a few factors at a time. We build a more comprehensive economic model of body weight, combining the 1990-2010 Behavioral Risk Factor Surveillance System with 27 state-level variables related to general economic conditions, labor supply, and the monetary or time costs of calorie intake, physical activity, and cigarette smoking. Controlling for demographic characteristics and state and year fixed effects, changes in these economic variables collectively explain 37% of the rise in BMI, 43% of the rise in obesity, and 59% of the rise in class II/III obesity. Quantile regressions also point to large effects among the heaviest individuals, with half the rise in the 90th percentile of BMI explained by economic factors. Variables related to calorie intake – particularly restaurant and supercenter/warehouse club densities – are the primary drivers of the results.

Here is a much earlier ungated version of the paper, with differing numerical estimates, use with caution.  A few related studies you will find here.

“How can the Spanish or Italian prime minister tell voters that Greece has a lower interest burden than we have, but we still need to give them debt forgiveness?” said Mr Darvas.

That is from Ferdinando Giugliano at the FT, who is referring to the possibility that the Greek debt load might be sustainable.  Don’t focus on the debt to gdp ratio of 175 percent, consider that the interest rates are low and the term structure of the debt is long.  Here is your Greece fact of the day:

Mr Darvas calculates that total interest expenditure in 2014 [for Greece] was 2.6 per cent, only marginally above France’s 2.2 per cent.

Yet I do not find the Greek position to be sustainable.  As has been the case from the beginning, the real problem in the eurozone is in the politics, not the raw numbers of the economics.  It is worth noting that there are Maoist and Trotskyite factions in Syriza, so if we are going to moralize about the National Front in France, or other disreputable groups, let’s be a little more consistent here…

Assorted links

by on January 26, 2015 at 12:59 pm in Uncategorized | Permalink

1. Why has this battery lasted for 175 years?  (Didn’t they read Coase?)

2. Scott Sumner movie and book reviews.

3. Ogilvie and Carus, a long essay on institutions and economic growth.

4. Daniel Davies on Greek scenarios.  And Alan Krueger: “But did the fall in wages lead to a fall in export prices?

5. Interview with Peter Boettke.  And how D’Angelo managed Black Messiah.