Tyler Cowen

It was said before that wedding that there would be ‘White House-level security,’ and there was an anti-drone falconer on the property.

The headline of the story is:

Art scion, 46, marries billionaire’s daughter, 23, in $5million French Riviera fete with ‘White House-level security’ and guests including Heidi Klum, the Olsen twins, Princess Bea and groomsman Owen Wilson

And do note:

The wedding took place at the Hotel du Cap-Eden-Roc in Antibes, France

For the pointer I thank Neville Andrew Mehra.

To score the benefits of eliminating trade deficit drag, we don’t need any complex computer model. We simply add up most (if not all) of the tax revenues and capital expenditures that would be gained if the trade deficit were eliminated. We have modeled only the impacts of implicit profits and wages, not any other economic aspect of the increased activity.

Trump proposes eliminating America’s $500 billion trade deficit through a combination of increased exports and reduced imports. Again assuming labor is 44 percent of GDP, eliminating the deficit would result in $220 billion of additional wages. This additional wage income would be taxed at an effective rate of 28 percent (including trust taxes), yielding additional tax revenues of $61.6 billion.

In addition, businesses would earn at least a 15% profit margin on the $500 billion of incremental revenues, and this translates into pretax profits of $75 billion. Applying Trump’s 15% corporate tax rate, this results in an additional $11.25 billion of taxes.

Emphasis is added by this author.

Here is the full document (pdf).  Here is my earlier profile of Peter Navarro.  For the pointer I thank the excellent Binyamin Appelbaum.

From Brinca, Chari, Kehoe, and McGrattan, there is a new NBER paper “Accounting for Business Cycles“:

First with the notable exception of the United States, Spain, Ireland, and Iceland, the Great Recession was driven primarily by the efficiency wedge.  Second, in the Great Recession, the labor wedge plays a dominant role only in the United States, and the investment wedge plays a dominant role in Spain, Ireland, and Iceland.  Third, in the recessions of the 1980s, the labor wedge played a dominant role only in France, the United Kingdom, Belgium, and New Zealand.  Finally, in the Great Recession the efficiency wedge played a much more important role and the investment wedge played a less important role than they did in the recessions of the 1980s.

You don’t have to agree with each and every claim there to see that a simple AS-AD model won’t give you enough structure to seriously address such questions.  And:

The first misconception is that efficiency wedges in a prototype model can only come from technology shocks…In our judgment, by far the least interesting interpretation of efficiency wedges is as narrowly interpreted shocks to the blueprints governing individual firm production functions.

As a good first-order approximation, everything you read about “real business cycle theory” from its non-practitioners in the popular realm is wrong.  Except the very phrase “real business cycle theory” isn’t even the correct term here.  Better would be “contemporary macroeconomics,” although then the sense-reference distinction is going to play havoc with the first sentence of this paragraph.

That is the title of the new NBER paper by Liran Einav, Amy Finkelstein, and Atul Gupta, here is the abstract:

We document four similarities between American human healthcare and American pet care: (i) rapid growth in spending as a share of GDP over the last two decades; (ii) strong income-spending gradient; (iii) rapid growth in the employment of healthcare providers; and (iv) similar propensity for high spending at the end of life. We speculate about possible implications of these similar patterns in two sectors that share many common features but differ markedly in institutional features, such as the prevalence of insurance and of public sector involvement.

Note that the number of veterinarians doubled from 1996 to 2013.  The authors do not seem to have data on whether cats and dogs live longer in the United States, but I have a surmise…

Here are ungated copies of the paper.

Assorted Monday links

by on September 26, 2016 at 11:39 am in Uncategorized | Permalink

1. Will humans wipe out rats?

2. Theodore W. Anderson, econometrician, has passed away.

3. Punishment in a world of life extension.

4. NYT reviews Abbey Road in 1969 and basically slams it.  The reviewer hated George’s songs on the album and confuses Paul’s voice with John’s, among other mistakes.

5. The visual design problems with U.S. coins.

6. The new Aguiar, Bils, Charles, and Hurst paper on leisure and the decline of work (pdf): “We use estimated “Leisure Engel Curves” to calculate that changes in leisure technology for computer goods broadly, and video games in particular, shift the labor supply curve by an amount between 10 and 25 percent of the observed decline in market work hours for prime age men and between 20 and 45 percent of the decline in market work hours for LEYM [less educated young men].”

China fact of the day

by on September 26, 2016 at 1:34 am in Data Source, Web/Tech | Permalink

The Chinese government estimates females found 55 percent of new Internet companies and more than a quarter of all entrepreneurs are women. In the U.S., only 22 percent of startups have one or more women on their founding teams, according to research by Vivek Wadhwa and Farai Chideya for their book ‘Innovating Women: The Changing Face of Technology.’

That is from Shai Oster and Selina Wang.  Some of that may stem from the one-child policy, but note ex-communist countries have relatively good records of producing female CEOs.

You can argue it either way.  On one hand, the forward march of the UK economy, and the inability to develop a coherent negotiating position, militate in favor of a relatively quick and condition-less Brexit.  The European Union is not offering any very flexible intermediate deals, perhaps to punish future would-be leavers.  On the other hand, the consequences would be sobering (FT):

Research by the FT shows the scale of the UK-based banks using passporting to sell into the EU. The group of 96 banks has assets of £7.5tn, directly employ more than 590,000 people and make annual profits of around £50bn.

Bank executives say EU passporting makes up 20-25 per cent of the London business of international investment banks, including the five big US players, who have assets of £1.5tn and staff of 21,000 in their UK-based banks, and the two big Swiss, which have assets of £415bn and staff of more than 6,000.

And:

…John Holland-Kaye, chief executive of Heathrow, warned that leaving the EU customs union would “add massive overhead” for businesses and port operators. “Can you imagine operating something like the Euro[tunnel] if you had to suddenly build in all these checks in place? It would be completely unmanageable,” he told the FT.

This explainer of the “gravity model of trade” shows the UK could not make up lost EU business elsewhere in the world.  Oil and a few other commodities aside, you trade with the countries that are next to you.

Overall, the Brexit stakes are higher than a few months ago, and that is making the final outcome harder not easier to predict.

Sunday assorted links

by on September 25, 2016 at 2:30 pm in Uncategorized | Permalink

1. Doubts about the supposed Chinese skeletons found in Rome, 3-5th century A.D.  Still, China to Rome just isn’t that far, and it is naive to believe this kind of contact didn’t exist.  Study the history of the Polynesians.

2. The main influences on Sam Bowman.

3. Puffin topology, with violin (short video).

4. Afghan Bistro in Springfield, the best Afghan food I’ve had, get the Aushak, kadu, and eggplant.

5. Tarkovsky’s Ivan’s Childhood, newly released in an accessible, English subtitled form, shows that even his “minor” works are better than almost anything else.

*Hitler’s Soldiers*

by on September 25, 2016 at 11:37 am in Books, History, Political Science | Permalink

The author is Ben H. Shepherd and the subtitle is The German Army in the Third Reich.  That may seem like a timeworn topic, but I found this book consistently fresh and interesting, also well-written, analytic throughout, one of the year’s best non-fiction studies.  Here is one bit:

Two occupied populations whom the German army particularly tried to cultivate were the Muslim peoples of the Crimea and the Caucasus.  The Sunni Tatars comprised a quarter of the Crimea’s population, and German army administrators saw them, as they would also come to see their Muslim brethren in the Caucasus, as presenting an opportunity to woo Islam in the Soviet Union for political and military gain.  The Germans granted the Tatars religious rights and concessions and reintroduced major religious holidays, and Manstein’s otherwise infamous November 1941 order required his troops to treat the Tatars with respect…the Germans appointed a Muslim committee to re-establish the religious infrastructure.

…Yet the failings of German occupation were soon apparent to these Muslim peoples.

Overall the message is that the German army was less effective and less moral [sic] than many other historians had suggested.  Recommended.

When should you place a higher penalty on transparently false outright repeated lies, and when should you be more upset by hypocrisy, namely a mix of altruism and self-interest and greed and defensiveness, bundled with self-deception and pawned off to everyone including yourself as sheer goodness?  In recent times the question has taken on further import.

From @EpicureanDeal:

“Here’s the part of the 2016 story that will be hardest to explain after it’s… over: Trump did not deceive anyone.”

From Deplorable Me:

reporters take Trump literally and not seriously. We take Trump seriously but not literally.

From Elberry’s Ghost:

in general, i prefer liars to hypocrites. A liar knows the truth and is cold-bloodedly trying to deceive you, probably for material profit or personal advantage, or malevolence – but in himself he knows the truth and so the situation is less unreal than with the hypocrite; for the hypocrite’s motive is often self-righteousness mingled with material profit and personal advantage. And the hypocrite believes his own lies, so the situation is wholly unreal, saturated with deception. With the liar one can at least guess there is a real human being somewhere behind the lies, watching, calculating; and sometimes in the midst of the deception one catches this real human being’s eye, and there is a moment of mutual recognition – that he is lying and he knows she is lying, and you know too, but of course neither will say so. With the hypocrite, all is false – through and through deception.

For purposes of illumination, say you treat this as a principal-agent problem.  You sometimes prefer if your children lie to you transparently than if they are more deviously hypocritical, even if the lies in the former case are greater.  The former case establishes a precedent that you can see through their claims, and they will not try so hard to disguise the fraud.  So transparent lies about taking out the garbage are excused if you know you can see through the later claims about drugs and drink and prepping for the SAT.

You are more worried about the hypocrite when you see bigger decisions and announcements down the road than what is being faced now.  You are more worried about the hypocrite when you fear disappointment, and have experienced disappointment repeatedly in the past.  You are more worried about the hypocrite when you fear it is all lies anyway.  Lies, in a way, give you a chance to try out “the liar relationship,” whereas hypocrisy does not.  You thus fear that hypocrisy may lead to a worse outcome down the road or at the very least more anxiety along the way.

But note: for a more institutional and distanced principal-agent relationship, it is often incorrect, and indeed dangerous, to rely on your intuitions from personalized principal-agent problems.

When it comes to how the agent speaks to allies and enemies, you almost always should prefer hypocrisy to bald-faced lies.  The history and practice of diplomacy show this.  Allies and enemies, especially from other cultures, don’t know how to process the lies the way you can process the blatant lies of your children, friends, and spouse.  They will think some of these lies are mere hypocrisy and that can greatly increase uncertainty and maybe lead to open conflict.  North Korea aside, the prevailing international equilibrium is “hypocrisy only,” and those are the signals everyone has decades of experience in reading.

Josh Barro tweeted:

People pretending to be better than they are is what holds society together.

International society too.

There is such a hullaballoo in my Twitter feed every day about the lies.  “It is now time to expose the lies!”  I feel sad when I read this, because many of the American people already are putting up with the lies or even welcoming them.  I do not see that as a correct course of action, as it is confusing personal morality with the abstract rules and principles that underlie social order (which is what voters almost always do, by the way).  We need continuing hypocrisy in the international order, and thus from our distanced political agents, even if we don’t want more of it in our personal lives.

I do not see enough people trying to understand lies vs. hypocrisy.  In fact it is tough for many people to make this leap, because doing so requires a Hayekian stress on the distinction between the personal and the abstract political and rules-based order.  That distinction does not always come easily to the non-Hayekians who comprise most of my Twitter feed.  They are very quick to invoke their own personal morality to attempt to settle political disputes.

Note also that if citizens care more about hypocrisy than lies, the media will in turn be harsher with hypocrisy than outright lies.  Some foundations will be covered (and criticized) more than others, even if the less-covered foundation has done more wrong and in a more blatant manner.  Covering hypocrisy also usually involves a longer story with more successive revelations and more twists and turns and narrative suspense and room for ambiguity and competing interpretations.

Furthermore, in this equilibrium the defenders of the morality of the hypocritical agent will in fact make things worse for that agent.  The hypocrisy will become not just a personal hypocrisy of the agent, but rather a broader, almost conspiratorial hypocrisy of greater society.  So the more you think one (hypocritical) agent is getting unfair press coverage, and the more you defend that agent, the worse you make it for that agent.

Talking about the lies of the lying agent may help that agent win popularity, by turning voter attention to the “lies vs. hypocrisy” framing rather than “experience vs. incompetence.”  The lying agent has at least some chance in the former battle, but not much in the latter.

I wonder if earnest Millennials have a special dislike of hypocrisy.

Think about it.  Or if not, at least pretend you will.

Saturday assorted links

by on September 24, 2016 at 2:06 pm in Uncategorized | Permalink

1. Peruvian interview with me (in Spanish).

2. Details on Doug Irwin’s just-delivered history of trade book.

3. Wells on Joyce: “And while you were brought up under the delusion of political suppression I was brought up under the delusion of political responsibility.”

4. The Dictator game with varying female beauty.

5. Board games non-clearing markets in everything: Scrabble yn Gymraeg, or in other words Scrabble in Welsh.  So far the five copies sitting in Waterstone’s have not been sold after two years.  Perhaps that is because the “y” and the “w” are worth only one point each.  “Twmffat” for the bonus!

6. “The paper attributes one-third to one-fifth of the decline in work hours by less-educated young men to the rising use of technology for entertainment — mainly video games.”  It’s not Scrabble yn Gymraeg keeping them at home…Link here, Alan Krueger calls it “strong evidence.”  Summers (FT) seems to endorse the hypothesis in passing.

Bangladesh (Russia) fact of the day

by on September 24, 2016 at 11:14 am in Current Affairs | Permalink

The landmass of Bangladesh is one-118th the size of Russia, but its population exceeds Russia’s by more than 25 million.

Most of the article (NYT) is about the unbearably bad traffic in Dhaka.  Every year 400,000 new people arrive in Dhaka, the city has only 60 traffic lights, and only 7 percent of the surface is covered with roads (Paris say would be about 30 percent).

The piece, by Jody Rosen, is interesting throughout.

Stephen J. Entin on raising estate taxes

by on September 24, 2016 at 2:59 am in Economics, Law | Permalink

The transfer [estate] taxes are highly distortive of economic activity. In fact, they probably do the most damage to output and income per dollar of revenue raised of all the taxes in the U.S. tax system. There are two reasons. First, they are an additional layer of tax on saving and investment, activities that are highly sensitive to taxation and very likely to shrink in response to the tax. Second, the transfer taxes are levied at very high, steeply graduated marginal tax rates on a very narrow tax base. The high rates discourage saving and investment at the margin, while the average tax rate and tax revenues are held down by the credit. A tax that has a large differential between its average and marginal tax rates does far more damage per dollar of revenue raised than a flatter rate tax on a broader base.

Here is the full study and pdf.  The pointer is from Alex T.

There are a few possible routes to establishing a monopoly in quant trading. Here’s one that seems to work really well. It’s kind of hard to explain, so bear with me. Many trading signals reliably predict prices, but not strongly enough to overcome transaction costs (i.e. exchange fees, clearing fees, liquidity costs, etc.). A stock can moves up or down $.01 in the next period, your trading signals predicts the right direction 60% of the time, and transaction costs average $.0025. Unfortunately after costs, you’ll end up losing $.0005 per trade, so it’s not a viable strategy.

But let’s say you’ve got three uncorrelated trading signals just like it. If you wait until all three point in the same direction, now there’s a 94% of the stock moving in your favor. You easily clear the transaction cost threshold and neatly make $.0063 per trade. When you gather together multiple uncorrelated signals, the whole becomes worth much more than the sum of the parts.

This is basically how a company like Renaissance Technologies operates. It has hundreds of people working in silo’d groups. Each group contributes to the overall fund’s strategy, but are largely unaware of what the others are doing. Alone any single group would probably not have a viable standalone strategy. That’s a big deterrent to people leaving, starting from scratch is really hard. And there’s only a few other major companies in Renaissance’s league, where they’re already strong enough to make money off of marginal signals. It’s a chicken-and-egg problem. To become viable in the space you need to accumulate a whole bunch of signals, but to attract a critical mass of talent with signals you need to already have a viable strategy running.

That one was “from the comments.

Here is one bit from a very good column:

She’s always been the duller, unfashionable foil.

Her donor base and fund-raising style is out of another era. Obama and Sanders tapped into the energized populist base, but Clinton has Barbra Streisand, Cher and a cast of Wall Street plutocrats. Her campaign proposals sidestep the cutting issues that have driven Trump, Sanders, Brexit and the other key movements of modern politics. Her ideas for reducing poverty are fine, but they are circa Ed Muskie: more public works jobs, housing tax credits, more money for Head Start.

Interesting throughout.  Here were my earlier thoughts on the matter, cited by David too.  Here are thoughts from John Judis.