Assorted links

by on June 1, 2013 at 1:13 pm in Uncategorized | Permalink

1. Student debt in Sweden is high, even though school is free.

2. The normative force of the Leontief production function, as illustrated by one consumer in Japan.

3. Kotlikoff on Reinhart and Rogoff.

4. Asimov short story — “Sally” — on self-driving cars.

5. opscost.com now has added features, including that patients can share their hospital bills with others.

6. Technological advances in trains, and has Sarkozy ever tried alcohol?  Carla says no.

1 Axa June 1, 2013 at 2:10 pm

Curious, the schedule planning for passenger and freight trains done with the help of big data and software was not mentioned. It’s great having 5-10 minutes stop-overs.

And one of train virtues was not mentioned, it is more resilient than cars to heavy snowfall. Airports are closed, cars are trapped in highways but trains just get late in winter.

2 anon June 1, 2013 at 7:39 pm

trains just get late in winter.

Unless the rr workers are on strike.

3 Finch June 2, 2013 at 2:16 pm

> it is more resilient than cars to heavy snowfall.

Have you ever relied on trains in a snowy area? This is the opposite of true. Trains are much more affected by snow, and in many areas rain, than cars.

4 mw June 1, 2013 at 2:18 pm

1. Has a pretty dumb headline. The summary I would have given is that, in a way that should please fabric-of-American-society-is-tearing conservatives, the Swedes don’t get stuck living in mom’s basement. Moreover, “whereas in the US parents are expected to help pay for the their children’s college education, in Sweden parental income levels are just not part of the equation” so that the burden of student debt is more equal than here should be the kind of thing that equality-of-opportunity conservatives should be similarly thrilled about.

Not that I *expect* either of those reactions.

5 Lotta Moberg June 1, 2013 at 9:56 pm

Good points. Still it is unclear to me whether the subsidized benefits of being a Swedish student makes economic sense. We can make similar claims about the social and equal outcomes of many policies. For instance, Americans do not get stuck renting apartments. Here, one’s income is hardly part of the equation of whether you get a mortgage. Does not mean that it is an optimal policy.
BTW, the cost of education in Sweden in negative, students receive a small stipend for studying for up to 6 1/2 years.

6 TMC June 2, 2013 at 9:54 am

Or more accurately,
1. Sweden’s ‘free’ education is a subsidy to the parents, not the kids.
Or 2. Sweden’s ‘free’ education is a subsidy to kid’s living conditions (not better,but more freedom – party on!), not the education.

7 mw June 2, 2013 at 2:59 pm

If it were a subsidy to parents, it should *still* depend on the parents’ income. Since it doesn’t, and since virtually all the swedes graduate with student debt, I don’t see how that hypothesis could be correct. Debt appears universal rather than reserved for the poor people we’ve decided here are irrelevant.

8 TMC June 2, 2013 at 8:04 pm

Outcome is that the student still owes almost as much. The cost of education no longer falls onto the parent. Thus a subsidy to the parent.

9 Bryan Willman June 1, 2013 at 2:57 pm

#3 is yet another (reasonable) round of “just because you have a big stake recorded in a book somewhere, even if it’s marked “dollars”, does not mean your standard of living in the future will meet any particular standard of goodness”.

The follow on being “massive savings does not always yield massive productive investment, so there is always the possibility that the economy will hit an output plateau inadequate for its needs, let alone promises.”

And of course, neither communism, nor socialism, nor fascism, nor feudalism, nor any other theory will overcome the above issues.
(Which suggests that Japan may be in terrible shape regardless of whether they can muster inflation….)

10 anon June 1, 2013 at 7:46 pm

From the article:

“Social Security benefits, on the other hand, are inflation-projected and backed by the 40-million strong American Association of Retired Persons.”

11 Barkley Rosser June 1, 2013 at 2:59 pm

There goes Kotlikoff again, a hysterian, not an austerian, regarding Social Security. He will not be happy unless there are either some really big benefit cuts or some really big fica tax increases, or both.

12 Ashok Rao June 1, 2013 at 7:13 pm

Well, the thing is, he’s been saying the same thing for more than ten years: and this has little to do with RR/Dube than his own belief about social security. See: http://ashokarao.com/2013/06/01/the-infinite-horizons-of-american-faith/

Point is, there is something theoretically different about bond markets, something he rejects. American treasuries are tradable, social security “bonds” are more like perpetuities that can’t be sold on any open market. Point two, the fiscal gap will ultimately be financed by the deficit (actually it by definition has to close, but that’s another story). Immediate shortfalls in trust funding will be paid by selling debt.

Then there’s the point that there are economic punishments via higher yields if we threaten to default on our debt. Only political punishment if we default on social security. Is that a problem? Absolutely.

But to say that economic theory suggests all liabilities are created equal is confusing at the least.

13 Peter Schaeffer June 1, 2013 at 11:31 pm

@AR,

I see a number of problems with Kotlikoff’s arguments. First, Social Security itself isn’t that bad off. Yes, it will not be self-financing of the 75 year horizon. However, the deficits just aren’t that large. One source, “Trustees Show Permanent Deficits for Social Security” (http://blog.heritage.org/2011/05/13/trustees-show-permanent-deficits-for-social-security/) gives a $9.1 trillion deficit for the 75 year horizon and a $17.9 trillion deficit for the infinite horizon. Given that the source is Heritage, it is rather unlikely that they are deliberately minimizing the future financial problems of Social Security.

By contrast, Kotlikoff uses a $60 trillion debt estimate for Social Security. Where did he come up with that number? It looks like he is discounting future Social Security payments and ignoring future Social Security tax receipts. That would be comparable to analyzing the finances of an apartment building by looking at the mortgage and taxes and ignoring the rents (of course, apartments are more likely to be profitable).

The second problem (as you correctly point out) is that not all liabilities are created equal Some are much more equal than others. Congress can and will change the Social Security rules (taxes and the retirement age) in the future to ”fix’ the system. Congress changes the rules (by raising taxes and the retirement age) back in the 1980s. The world did not come to an end. Of course, conservatives will object to the higher taxes and liberals will cry about ‘broken promises’ when the retirement age is raised. The protests will last about 5 minutes after the legislation is signed into law.

By contrast, any type of default on the national debt would be a rather big deal. America can default via inflation (it’s been done several times) or by explicitly defaulting. Conversely the public debt can not be repudiated (14th Amendment, Section 4).

Partial default via inflation certainly has consequences in terms of future funding costs. Temporary default (failure to make an interest or principle payment) might or might not have material consequences depending on the duration, magnitude, and likely reoccurrence. Repudiation would have large consequences, but is not Constitutionally possible.

Kotlikoff appears to not understand this point. He writes

“But these fancy words don’t preclude formal default, let alone informal default via government-caused inflation.”

Although he says, ‘formal default’, he implies repudiation which is not possible without amending the Constitution.

In one respect, Kotlikoff is clearly right. The intergenerational deal is going to change over time because it has to. The ratio of workers to retirees will continue to fall for some time to come. This is the ‘golden age’ of government funded retirement. Today’s retirees are getting a deal better (money in vs. money out) than any future generation will enjoy. He is dead right about this. However, it’s not a substantive critique of R&R.

14 F.F. Wiley June 2, 2013 at 1:20 am

PS:
Many good points and well-made. imo it’s not a big deal that Kotlikoff doesn’t mention repudiation and the constitution, though. Repudiation is the ultimate default but it’s unusual because it means turning your back on global creditors completely and closing off your economy. One of the reasons that insolvency eposides tend to drag on for years and years (and recur) is that you almost never want to repudiate, regardless of whether it’s legal or not. Instead, you reduce debt through restructurings and conversions (as well as repression and inflation), but without entirely eliminating the debt burden. I think you would find that exceptions are just as likely to be explained by forgiveness than repudiation, such as the U.S. forgiveness of much of the debt run up by its allies during and immediately after WWI. As far as Kotlikoff’s piece, I interpret references to “default” as payment difficulties that are eventually resolved with restructurings or conversions or hyperinflations leading to new currencies (and this is what I mean when I write about the risk of default also – the prose gets too dense imo if you’re always trying to clarify the different types of default.)

15 Ashok Rao June 2, 2013 at 6:27 am

You’re right. But the fact is our promise to creditors is financial, and any default or threat thereof, will be punished by higher yields.
Our promise to social security is political, and hence any default or threat thereof will be punished by fewer votes.

There’s nothing mildly confusing about that, and yet Kotlikoff insists economic theory doesn’t differentiate between untradable perpetuities forced upon you and government-sold debt.

“Today’s retirees are getting a deal better (money in vs. money out) than any future generation will enjoy. He is dead right about this. However, it’s not a substantive critique of R&R.”

Right, that echoes my last paragraph, “That doesn’t mean Kotlikoff is wrong, in fact he’s dead right – just in the wrong debate. His argument makes an incredibly strong case that we must amend our law. That is the definition of a “$222 trillion” fiscal gap. There are no other ways to look at the picture. But the idea that theoretical dynamics behind growth and debt do not discriminate between mode of liability is insane.”

Fact of the matter is this has *nothing* to do with RR, and political and economic liabilities are *not* the same.

16 Andrew' June 2, 2013 at 10:03 am

His broader point is well-taken. It makes the criticisms of R&R worse in more than one way.

17 Peter Schaeffer June 2, 2013 at 10:53 pm

@AR,

One more argument against Kotlikoff. Right now any number of countries are in deep debt trouble. The list includes Ireland, Italy, Portugal, Spain, Greece, and Cyprus and that’s just in Europe.

How many of these countries have a R&R debt crisis (official debt) versus a Kotlikoff debt crisis (unfunded welfare state obligations). The answer is all of them. Official debt is the proximate cause of the crisis in every case that I know of. Welfare state promises are just that. Promises that may or may not be kept and can be modified. Official debt isn’t so malleable other than by inflation. Of course, official debt borrowed in a foreign currency isn’t malleable at all.

18 Barkley Rosser June 2, 2013 at 2:53 pm

Kotlikoff has made a career of forecasting that Xers and Millennials will soon be sending Boomers to the gas chambers over the high probability that their future benefits might get cut in the future. So, DC VSPs like to drag him out for show when they continue their drum beating that future benefits must be cut now, rather than maybe in the future (!). That medical care costs are not rising as rapidly as they were has this whole crowd even more hysterical that they may not be able to frighten everybody into action now (!). Hence, all the more reason to bring out Kotlikoff and his boogey people.

As it is, as most here have noted, his arguments are pretty much irrelevant to the controversies surrounding R&R’s work, and this is not even taking into account the fact that his numbers have been off the rails for years.

19 Ostrich June 3, 2013 at 7:28 pm

Yeah, Kolitkoff is just a scare-monger, right? The world didn’t end yesterday or today. I have no reason to expect our tomorrow’s will be any different. Demography- ha!

20 peter n June 2, 2013 at 5:02 am

Kotlikoff is right that the debt figures used by R&R are arbitrary and of dubious economic significance. Unfortunately, his are even worse. It’s not even clear that any measure of purely public debt is meaningful, when the sovereign is on the hook for a large slice of the country’s private debt and it’s the lender of last resort and guarantor of the country’s banking system.

Until economists catch up to accountants on this stuff, they can write nothing but garbage, since the numbers they’re working with are bogus. It’s like believing movie industry accounting about whether a movie is profitable.

“According to Lucasfilm, Return of the Jedi despite having earned $475 million at the box-office against a budget of $32.5 million, “has never gone into profit”.

“The film My Big Fat Greek Wedding…, which cost less than $6 million dollars to make and made over $350 million at the box office, lost $20 million.”

Of course governments would never do things like that, right?

And, of course, since we “owe it to ourselves” and “for every borrower there’s a lender”, none of this can possibly make any difference, therefore as Bertrand Russell proved, I’m the Pope. You may kiss my ring.

21 londenio June 1, 2013 at 4:26 pm

Carla Bruni’s interview is very revealing of the (culture that is) French. Can anyone imagine a US (former) first lady saying these things?

22 anon June 1, 2013 at 7:41 pm

Dolley Madison?

23 Vernunft June 1, 2013 at 8:09 pm

Someone else paying for something != that thing being free. Basic, basic stuff, dude.

24 ChrisA June 1, 2013 at 9:00 pm

I just don’t get this love of trains versus planes for medium distance personal travel. Trains are great for commuting (although I suspect converting overland train routes to dedicated bus routes would add more capacity and allow more flexibility at the beginning of the commute). But they are lousy when compared to a 737. Consider how much less ground space is consumed, how much more flexible a plane is, how less intrusive to the surrounding environment. Planes are a public transport success, where else do you see all levels of society packed together three to a row, elbow to elbow receiving the same service?

The only answer I can give is that trains allow much more opportunity for rent seeking. Trains require very large fixed investments that are very easily captured, both in the construction and operation.

25 Ronald Brak June 1, 2013 at 9:18 pm

ChrisA, trains generally take people to where they want to go while planes take people to airports.

26 mw June 1, 2013 at 11:00 pm

+1. 1hr of transit on either end plus 1.5hr sitting at the airport. Pretty awful.

27 ChrisA June 2, 2013 at 12:06 am

If the benefit of trains over planes is the ability to start and finish the journey in the centre of the city (relevant perhaps for only a section of travellers), then build a railway from the centre of the town to the airport. Same result but with a much shorter railway. In fact you could even have check in at the station, I have seen this done in many places.

28 Eric June 2, 2013 at 7:51 am

You mean to say that trains (might) take you to the central business district and planes take you to airports. Big difference.

29 Peter Schaeffer June 2, 2013 at 11:51 pm

All,

I can’t speak for the world, but the trend in Chinese HS railway stations has been to build them on the outskirts of cities, much like airports.

30 Tom June 1, 2013 at 10:27 pm

Great reminder of Asimov and his thinking robot cars. I remember another story with a Sally type car and her owner chasing a rogue car, which was trying to seduce the owned car into killing the owner and going rogue.

What seems likely to me when driverless cars are better is, first, driverless delivery trucks. Unload from a train in the off hours, and deliver the stuff to various stores.
Another win will be driverless taxis, picking folks up near their doors, delivering them to work, and not worrying about parking (but having good wi-fi). Multi-person jitney / mini-busses might also be in the mix.

31 Douglas Knight June 1, 2013 at 10:47 pm

Roger Zelazny, Devil Car

32 Eric H June 1, 2013 at 11:17 pm

#1: There are a few points missing from the article:

Tertiary educational achievement: 32% in Sweden, 37% in the US
Education Spending (% of GDP): 7.7% in Sweden, 5.7% in the US
Primary Teacher Starting Salary: Sweden $18,581 US $25,707

If this was health care, the wonks should be saying that Sweden needs to adopt the US model. However, Literacy (adults at high rate): Sweden 35.5%, US 19%

33 Peter Schaeffer June 1, 2013 at 11:55 pm

@Eric H.

Using NationMaster as a source is perilous, to say the least. You just don’t know what you are actually getting (same holds for Trading Economics and a few similar sites). Let’s use better sources. See

“Education at a Glance: OECD Indicators 2012 – United States”

Key Facts – “Total public and private expenditure on education” – 7.3% of GDP.

“The U.S. spends a large proportion of its national wealth on education – particularly higher education…
Taking into account spending from public and private sources, the U.S. spends 7.3% of its GDP on all levels
of education combined. This is well above the OECD average (6.2%), and more than all other OECD
countries except Denmark (7.9%), Iceland (8.1%), Korea (8.0%) and New Zealand (7.4%) (Table B2.1).
Across all levels of education, annual per-student spending by educational institutions in the U.S. is higher
than in any other country, at USD 15 812 (Table B1.1a).”

and compare with

“Education at a Glance: OECD Indicators 2012 – SWEDEN”

Key Facts – “Total public and private expenditure on education” – 6.7% of GDP.

Note that the same report also states “Some 7.3% of GDP is allocated to education and R&D undertaken within higher education institutions”.

34 Eric H June 2, 2013 at 11:31 am

Good point, and I agree that it’s spotty at best. However, even the OECD numbers (Indicator A1: To what level have adults studied) supports the observation that despite not being free, more students in the US attain higher levels of education (especially tertiary Type A) than in most other OECD countries (with the exception of Japan, Korea, and Netherlands). My theory is that this is probably because the quality of secondary education in the US is much worse.

35 Peter Schaeffer June 2, 2013 at 10:41 pm

@EH,

“My theory is that this is probably because the quality of secondary education in the US is much worse.”

I think you are correct. It’s a cliche in the US, that college is really an attempt to teach, what should have been learned in High School. It’s also quite true that a substantial percentage of entering college students require remedial education. See

“Remedial education in the United States” – http://en.wikipedia.org/wiki/Remedial_education#Remedial_education_in_the_United_States

“Postsecondary remediation is a controversial issue. As Bahr (Bahr 2008a, pp. 420–421) explains, “On one hand, it fills an important niche in U.S. higher education by providing opportunities to rectify disparities generated in primary education and secondary schooling, to develop the minimum skills deemed necessary for functional participation in the economy and the democracy, and to acquire the prerequisite competencies that are crucial for negotiating college-level coursework. On the other hand, critics argue that taxpayers should not be required to pay twice for the same educational opportunities, that remediation diminishes academic standards and devalues post-secondary credentials, and that the large number of underprepared students entering colleges and universities demoralizes faculty. Following from these critiques, some have argued for a major restructuring of remediation or even the elimination of remedial programs altogether.”

The other factor driving college in the U.S. is the general and pervasive discrimination against anyone without a college diploma.

One important caveat. My comments (in this case) are opinions based on a limited knowledge of the facts, particularly international comparisons.

36 TallDave June 2, 2013 at 3:14 am

4. Always liked this story! Zelazny’s work in this genre is also excellent, though a bit more cautionary.

37 Andrew' June 2, 2013 at 10:01 am

3. Kotlikoff is always talking his book, so to speak. It’s not bad, all academics do, if they are successful. But his criticism is basically a non-criticism. If you add noise to the input you make a discernible inflection point in the output WORSE. Someone who actually knows math and/or macro please refute me.

38 Careless June 2, 2013 at 11:09 am

Qz remains the worst website I’ve used since the 90s. Completely unusable on this device and my old phone, and just annoying on a comouter. Unfathomably bad job in 2013 by professionals.

39 Floccina June 3, 2013 at 1:45 pm

#10
1. Just like in the UK medical care is free but people go bankrupt when hey get too sick to work and cannot pay their bills.

2. Here in Florida state run colleges and universities are close to free but students can still end up loaded with debt.

40 Brian Donohue June 3, 2013 at 7:30 pm

re #3. “The relentless postwar expansion in the fiscal gap fueled a truly amazing consumption spree by oldsters that drove our national saving rate from 14 percent in 1950 to 1 percent last year.”

Pfft. If we can only get consumers to unbutton their wallets, it’ll all come right.

Seeing commenters of the left and right joining arms to dismiss Kolitkoff does not bode well.

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