Tyler Cowen

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.

In the United States, at least 70 percent of all the food we eat each year passes through a cold chain. By contrast, in China, less than a quarter of the country’s meat supply is slaughtered, transported, stored or sold under refrigeration. The equivalent number for fruit and vegetables is just 5 percent.

The article has other points of interest, an excellent piece by Nicola Twilley.

Assorted links

by on July 27, 2014 at 1:12 pm in Uncategorized | Permalink

1. The “merge rudely” movement.

2. John Nye on inequality.

3. Does the North Carolina experiment prove anything?

4. Is there planned obsolescence for iPhones?

5. Sticky real wages and the Great Reset.  And the new economics of the family.

6. Malcolm Gladwell shares life lessons, including on board games.

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower.

…“The housing bubble basically hid a trend of declining financial wealth at the median that began in 2001,” said Fabian T. Pfeffer, the University of Michigan professor who is lead author of the Russell Sage Foundation study.

From Anna Bernasek, there is more here.  And background here.

From Free Exchange:

…levelised costs do not take account of the costs of intermittency…

Seven solar plants or four wind farms would thus be needed to produce the same amount of electricity over time as a similar-sized coal-fired plant. And all that extra solar and wind capacity is expensive.

If all the costs and benefits are totted up using Mr Frank’s calculation, solar power is by far the most expensive way of reducing carbon emissions. It costs $189,000 to replace 1MW per year of power from coal. Wind is the next most expensive. Hydropower provides a modest net benefit. But the most cost-effective zero-emission technology is nuclear power. The pattern is similar if 1MW of gas-fired capacity is displaced instead of coal. And all this assumes a carbon price of $50 a tonne. Using actual carbon prices (below $10 in Europe) makes solar and wind look even worse. The carbon price would have to rise to $185 a tonne before solar power shows a net benefit.

There is more here.  The relevant cited studies you can find here.

Assorted links

by on July 26, 2014 at 3:39 pm in Uncategorized | Permalink

1. There is no great stagnation, water balloon edition.

2. Using a nanoprinter to make a Monet.

3. How conductors deal with aging.

4. Is Russia pregnant with Ukraine?

5. How good is the marginal, subsidy-encouraged Austrian marriageHow much would the Paul Ryan anti-poverty plan, as written, cost?

6. Preference-eliciting statutory default rules (pdf).

SES [socio-economic status] correlates to willingness to use military force, but not one’s assessment of the need for it.

That is from a fascinating and just-released book I have been reading from Jonathan D. Caverley, A Theory of Democratic Militarism: Voting, Wealth, and War.

It would be much easier if (some) people would simply say “Of course this normally should be kicked back into the legislature for clarification.  But I don’t want to do that because I don’t regard Republican control of the House, and how that control is used, as a legitimate form of rule.”  One may agree, or not, but the nature of the case is pretty clear.

Instead we read irrelevant blog posts and tweets about how the experts meant to have subsidies at all levels all along.  Of course they did.  But did Congress know what it was doing in a detailed sense, one way or another?  Hard to say, personally I doubt it, and Alex says no.  The basic starter hypothesis here is that many of them knew this was a health care bill, it would extend coverage, it had a mandate, it had some subsidies, it had a Medicaid expansion, it had some complicated cost control, it was approved by leading Democratic Party experts, it met some CBO standards, and beyond that — if you pull out those who were confused on the details of the exchanges and the subsidies do you still have majority support?  I doubt it.  Most absurd of all are the tweets asking the critics to show Congress intended no federal-level subsidies.

So, to return to the title of this post, the import of the Gruber fracas is to show that if he can be confused (more than once, at that, and is “confused” even the right word?) a lot of ACA supporters in Congress probably were confused too.

So given that across-the-board subsidies are not written into the bill formally, and given the importance of precedent, and rule of law, why not kick the matter back into the legislature for redrafting?  Which brings us back to the first paragraph of this blog post…

I have drawn on some Ross Douthat tweets in thinking through this post.

But there is one type of insurance that people buy to protect them from the consequences of unusually good luck: In Japan, the U.K., and, to a lesser extent, around the world, golfers buy insurance to protect themselves from the potentially bankrupting consequences of sinking a hole in one.

The concept of hole in one insurance may baffle the uninitiated, but to many it is a wise precaution as golf tradition holds that anyone who scores a hole in one should buy drinks back at the clubhouse for his playing group — if not everyone present. In Japan, many give extravagant gifts to friends and family after scoring a lucky ace.

And indeed there is such an institution:

A number of firms offer hole in one insurance, frequently bundled with other services that golfers commonly buy like insurance for golfing equipment or personal liability. (Apparently yelling “Fore!” can’t ward off lawsuits if you hit a ball right at someone.) Golfplan, a U.K. insurer, covers $340 to $510 worth of drinks for hole in one celebrations. (Clubs’ set of rules for validating a hole in one makes it easier to process claims.) When it is sold unbundled, hole in one insurance can be cheap; Tokio Marine & Nichido Fire Insurance Co. Ltd offers Japanese golfers hole in one insurance for as little as a $3 premium. Outside of individual policies, golf tournaments also get hole in one insurance so that they can offer huge cash prizes for a hole in one as a marketing promotion — it’s the same type of “prize indemnity” insurance that covers teams when a fan sinks a half court shot or makes a field goal.

In the United States, where the custom is less firmly established, golf forums are filled with debate about what tradition demands. Some clubs have written the tradition into their rules. The New York Times notes that the membership dues at one San Francisco club include covering $250 worth of drinks to celebrate any hole in one, while a similar system at a club in Bremerton, Washington, gives pro shop and food and beverage credit to the lucky golfer — it’s up to him or her to share.

The full story is here, hat tip goes to Michael Rosenwald.  I wonder how many people buy this insurance simply to convince themselves (falsely) that they have some chance of making a hole in one.

Like much of her commentary, I find this considerably overstated.  Still, it suggests a few points of interest and also concern:

The mere existence of this facility could exacerbate liquidity runs during times of market stress. Borrowers in the short-term debt markets will have to compete with it for investment dollars and all, to varying degrees, will be viewed as higher risk than lending to the Fed. Even a relatively minor market event could encourage a massive flow of funds to the Fed while contributing to a flow away from other short-term borrowers.

Nonfinancial companies could find themselves unable to find buyers for their commercial paper. Banks could confront a sudden outflow of deposits, particularly those which are uninsured. Even the U.S. Treasury—traditionally viewed as the safest harbor—could see its borrowing costs spike as investors decide that the Fed is even safer.

Ironically, faced with a more acute liquidity crisis, the Fed would likely have to use the funds it is borrowing through reverse repos to provide a lifeline to the very markets that suffered. For investors seeking safety, the Fed would become the borrower of first resort. For borrowers affected by the resulting diversion of funding, the Fed would become the backstop lender.

The reverse repurchase facility also seems to be at cross-purposes with Congress’s efforts to contain the government safety net. After many years of consideration, Congress in 2008 reluctantly gave the Fed authority to pay banks interest on the money they keep on deposit with it. The reverse repurchase facility essentially gives large nonbank financial institutions the routine ability to place money in the functional equivalent of an overnight deposit with the Fed and receive interest.

In December 2012 Congress allowed the Federal Deposit Insurance Corporation’s crisis-era program to provide unlimited guarantees for non-interest-bearing transaction accounts—such as those used by businesses and local governments to process payroll and other expenses—to lapse. So the Transaction Account Guarantee Program is dead—but the Fed’s reverse repurchase facility enables large nonbank financial institutions to obtain explicit government backing for billions placed with the Fed, but without the burdens of deposit insurance premiums and the kind of prudential supervision that applies to banks.

The full WSJ Op-Ed is here.

Assorted links

by on July 25, 2014 at 11:44 am in Uncategorized | Permalink

1. The London pheromone party.

2. Get paid (a little) for Facebook posts.

3. “Both studies revealed similar patterns of relations between trolling and the Dark Tetrad of personality: trolling correlated positively with sadism, psychopathy, and Machiavellianism, using both enjoyment ratings and identity scores. Of all personality measures, sadism showed the most robust associations with trolling and, importantly, the relationship was specific to trolling behavior.”  Link here.

4. Do you value more what you choose yourself?

5. Claims about the pricing of cocktails.  And do you value more what you choose yourself?

6. The life of Vladimir Putin.  Good coverage.

The Ryan plan is here (pdf), an NYT summary is here. Overall it’s pretty good.  It attacks excess incarceration and occupational licensing and regressive regulations, three issues where a serious dialogue is badly needed.  It makes a good attempt to limit the incentives for lower-income people not to work.  It’s better than what the Left is turning out for the first time in…how long?

I’m not crazy about the complicated plan to monitor the lives of the poor in more detail (“…work with families to design a customized life plan to provide a structured roadmap out of poverty.”)  And my biggest conceptual objection is the heavy stress on block grants and letting the states figure things out.  I’m not opposed to that in principle, and I might even favor it, but I think it’s often the lazy man’s way of avoiding talk about difficult trade-offs.  I’d like to see a possible plan for just a single state, or better yet two or three, that is supposed to represent an improvement.  That shouldn’t be too hard to do, or if it is maybe the states can’t do it either.  It’s not as if fifty states are giving us a market-based discovery process, as the rhetoric sometimes implies.  Furthermore we have a bunch of large states with ongoing bad governance, such as CA, NY, and IL, and maybe the federal government really can do better for those places.

Here is Vox on the regulation side of the plan.  Kevin Drum offers comment.  Ross Douthat mostly likes it.  Jared Bernstein doesn’t like it.  Robert Greenstein is critical.  Here is Neil Irwin.  And Annie Lowrey.  And Josh Barro.  And Yuval Levin.  And Ezra Klein.  Other people have opinions about it, too.  Or so I am led to believe.

…they all had help in the early going from Matt Scherer. Scherer is, or was up until about a week ago, a professional track pacer, one of only a handful of people worldwide who used his speed and finely honed sense of time to help other people run fast. Though he started out as a competitive runner, his resume is filled with other runners’ accomplishments.

Pacers, or rabbits as they’re sometimes called (thus the bunny photo loop on his website), are frequently used in track races of 800 meters and longer to standardize the early laps and facilitate lively competition and fast times. Their job is to accurately lead through the first lap or 600 meters in a very specific time, getting the field off to a good start before stepping off the track, in anonymity. The pacer is a visual embodiment of time. Other runners in the field can easily judge their pace by how close they are to the rabbit. In recent years, almost every middle distance and distance world record was set with the help of a pacer. They’re not allowed in World Championship or Olympic competitions, which may account for the few world record performances at those events.

The full story is here, interesting throughout, and for the pointer I thank Michael Cohen.