Tyler Cowen

Wednesday assorted links

by on October 26, 2016 at 1:54 pm in Uncategorized | Permalink

This is an underdiscussed question, and it is the topic of my latest Bloomberg column.  Here is one part of the argument:

Unlike the U.S., China is full of large, state-owned enterprises. That gives the Chinese government the ability to manipulate a large stock of asset wealth. The U.S. government is more dependent on flows of revenue from taxation and the private sector.

When bad economic news arrives, the Chinese government can instruct the companies it owns to spend wealth to keep workers employed. Think of this as using the companies to conduct fiscal policy rather than laying off workers, building another bridge or erecting another steel plant. Whereas Western economies take an immediate hit to income in bad times, the Chinese have been converting this into a hit to wealth, insulating themselves from major downturns.

That can be useful, but it also can be abused. Indeed, China has ended up with too few bankruptcies and significant excess capacity and lots of low-performing firms.

One problem comes when the stocks of corporate wealth are nearly exhausted, or perhaps sooner when managers of state-owned companies rebel against this policy and demand alternatives. Another problem is that too many low-productivity firms survive. So when the dramatic Chinese recession finally does come, it will be without the protective buffers of wealth that the U.S. had during its financial crisis.

The wealth vs. income distinction still does not receive enough attention in macro.  There is much more at the link.  I also consider under what conditions China might avoid a crack-up altogether, namely if the forces of catch-up keep on validating the ongoing malinvestments.  Forecasting China is more like judging a race than just identifying a bubble.  Note that “At least by traditional metrics, the Chinese system has showed signs of trouble and excess capacity at least since 2006.”

That is the title of a 2001 AER piece by Tasneem Chipty, here is the abstract:

I examine the effects of vertical integration between programming and distribution in the cable television industry. I assess the effects of ownership structure on program offerings, prices, and subscriptions, and I compare consumer welfare across integrated and unintegrated markets. The results of this analysis suggest two general conclusions. First, integrated operators tend to exclude rival program services, suggesting that certain program services cannot gain access to the distribution networks of vertically integrated cable system operators. Second, vertical integration does not harm, and may actually benefit, consumers because of the associated efficiency gains.

Out of date, yes, but still evidence that the proposed AT&T and Time-Warner merger is unlikely to damage the interests of consumers.  When there is some market power at each step along the supply chain, vertical integration typically lowers margins and prices, thereby increasing consumer surplus.

For the pointer I thank John Chilton, who also points us to this review chapter by Paul Joskow.  Here is a good James B. Stewart (NYT) piece on how antitrust thinking is moving backward these days, away from science more toward mood affiliation.

A homeowner took to a message board Sunday to complain about her neighbor’s sign supporting the Republican presidential candidate, Donald Trump. The anonymous homeowner said his or her family lived in a liberal part of Northern Virginia and were putting their house up for sale. The homeowner feared that the Trump sign would scare away potential buyers, and asked on the message board whether it was appropriate to ask the neighbor to take down the sign.

…The question proved popular, and elicited 10 pages of responses. Some commenters, in more offensive terms, said the anonymous poster was being ridiculous to even think this was in issue; others suggested the homeowner wait until after the election to sell the house. Still others said they would not want to buy a house next to a Trump supporter.

And the denouement?

But somehow, amid this divisive election, peace was found.  The homeowner reported back later Monday that she or he talked to the neighbor, and the neighbor seemed understanding of the predicament and removed the sign. The neighbor was an elderly woman who apparently didn’t even like Trump much. She was, however, married to a big Trump fan who was not home at the time. It is unclear how her husband felt about her decision to remove the sign.

Coasean or non-Coasean?, you tell me.

Here is the full story, via Dan R.

The Steven Pinker podcast and transcript will be ready next week, November 7 is a live event with Joseph Henrich, a Conversation with Tyler, Arlington campus 6 p.m.  If you don’t already know, here is Joseph Henrich:

Joseph Henrich…[is]…an expert on the evolution of human cooperation and culture…

Henrich’s research has challenged the typical narrative about human evolution to show how our collective brains – our ability to socially interconnect and learn from one another – is the driving factor behind our evolutionary success. Henrich presents these compelling arguments in his latest book, The Secret of Our Success: How Culture is Driving Human Evolution, Domesticating Our Species, and Making Us Smarter (2015).

Co-author of Why Humans Cooperate: A Cultural and Evolutionary Explanation (2007), Henrich’s research seeks to discover the role of culture in shaping our evolution; how evolutionary theory can help us understand how we learn and transmit culture; the role of war and conflict in the evolution of cooperation and sociality; what factors drive innovation and cultural evolution; and ultimately what has allowed humankind to flourish over other species.

Henrich earned his MA and PhD in anthropology from University of California at Los Angeles. He currently teaches at Harvard University as a professor of human evolutionary biology.

So what should I ask Joseph Henrich?

Though online technology has generated excitement about its potential to increase access to education, most research has focused on comparing student performance across online and in-person formats. We provide the first evidence that online education affects the number of people pursuing formal education. We study the Georgia Institute of Technology’s Online M.S. in Computer Science, the earliest model to combine the inexpensive nature of online education with a highly-ranked degree program. Regression discontinuity estimates exploiting an admissions threshold unknown to applicants show that access to this online option substantially increases overall enrollment in formal education, expanding the pool of students rather than substituting for existing educational options. Demand for the online option is driven by mid-career Americans. By satisfying large, previously unmet demand for mid-career training, this single program will boost annual production of American computer science master’s degrees by about seven percent. More generally, these results suggest that low-cost, high-quality online options may open opportunities for populations who would not otherwise pursue education.

That is from a new NBER paper by Joshua Goodman, Julia Melkers, and Amanda Pallais.  And here is a new NBER paper by Deming, Lovenheim, and Patterson: “Our results suggest that by increasing competitive pressure on local schools, online education can be an important driver of innovation and productivity in U.S. higher education.”

Tuesday assorted links

by on October 25, 2016 at 11:31 am in Uncategorized | Permalink

Prior to 1968, membership in the Cleveland Orchestra was a part-time job. When he joined the orchestra, the regular season was just 30 weeks long, with lower pay for summer concerts. In 1952, the base salary was $3,240—$29,231 in today’s dollars. By 1967, it had only gone up to $11,700. (The current base salary is $120,000.) The U.S. median household income in 1967, by contrast, was $7,970. According to a 1952 survey, 60% of the players moonlighted in nonmusical jobs, and many of them did so until 1968, when Cleveland, in keeping with other top-tier American orchestras, finally lengthened its season to 52 weeks.

Here is Terry Teachout on today’s orchestral strikes. How much are the striking musicians paid, and are they as good as the former Cleveland players?:

Suffice it to say that the annual base salary is $107,000 in Pittsburgh and $128,000 in Philadelphia. (At the New York Philharmonic, it’s $146,848.) In Fort Worth, the average salary is $61,000. The music directors of those orchestras may make 10 to 20 times what players do, and managerial salaries are also higher. Allison Vulgamore, president and CEO of the Philadelphia Orchestra, is said to be paid roughly $725,000 a year.

Something fundamental has changed about social expectations, yes?

Renminbi vs. yuan

by on October 25, 2016 at 12:44 am in Economics, History, Uncategorized | Permalink

The style guide of The Economist magazine, after explaining the difference between the two terms, leaves no ambiguity about what its reporters should use: “Renminbi, which means the people’s currency, is the description of the yuan, as sterling is the description of the pound.  Use yuan.”  The Financial Times favors the use of renminbi over yuan by a six-to-one ratio.  But Financial Times reporters seem to believe its readers are sophisticated enough to be able to shift back and forth between the two terms without further explanation.

That is from new and useful Gaining Currency: The Rise of the Renminbi, by Eswar S. Prasad.

And here is the BBC:

“Renminbi” is the official name of the currency introduced by the Communist People’s Republic of China at the time of its foundation in 1949. It means “the people’s currency”.

“Yuan” is the name of a unit of the renminbi currency. Something may cost one yuan or 10 yuan. It would not be correct to say that it cost 10 renminbi.

I did not know this:

The word “yuan” goes back further than “renminbi”. It is the Chinese word for dollar – the silver coin, mostly minted in the Spanish empire, used by foreign merchants in China for some four centuries.

If you wish to pursue it further:

As it happens, Chinese people rarely talk about renminbi or yuan.

The word they use is “kuai”, which literally means “piece”, and is the word used historically for coins made of silver or copper.

And so on…

Adam Ozimek raises that question.  You might think a growing population is obviously better for business, but it’s actually not so clear:

It’s true bigger places have advantages in terms of being able to offer a greater variety of consumer options and niches. But marginal population growth doesn’t do all that much to change the relative size of a place. A small city growing fast takes a long time to become a mid-sized city, and so forth.

Yes, a growing population means greater demand, but it also means greater supply. So if you are a lawyer, and you care about the relative scarcity of lawyers then it doesn’t really matter if the overall population is growing. It’s really about the population of lawyers relative to the rest of the population, eg customers.

If a growing population brings growing supply and demand in equal proportion, then a business person should be indifferent between growing and shrinking. Given that land prices will be falling in shrinking places, you might even think they have an advantage.

He suggests that competing for new customers may be easier than competing for already-attached customers, and thus entrepreneurs should prefer a growing population.

I say it is fixed costs and minimum scale.  If population is shrinking, the marginal costs of your company typically are rising (the higher cost of competing for already-attached customers can be one example of this).  With a rising population, marginal cost is falling and for sectors with reproducible outputs marginal cost will be zero or near-zero.

Of course these effects will vary across sector.  In New Zealand, a small country, the lamb meat is of high quality.  It is not only the proximity of the source, but this is not an increasing returns to scale sector;  if you wish to sell more lamb meat, you have to raise another sheep.  In contrast, a newspaper fares much better with a larger population, as does a bookstore or movie and television production.

As population shrinks in many countries, reproducible cultural enjoyments are more likely to come from abroad.  The shrinking countries however will offer relatively favorable conditions for innovating domestically with high-quality raw materials, or in other words you have to visit small/shrinking countries to really enjoy what they have to offer.  Like lamb meat in New Zealand.  Lower land prices in shrinking countries will further boost this tendency to focus on quality raw materials production and manipulation.  In other words, Italian food in Italy might stay good for a long time to come.

I’ve already argued that you should visit small countries and territories now, because their special cultures will be overwhelmed and expire more rapidly than is the case for larger units.  This mechanism, outlined above, is another reason for why you really need to be there.  In other words, your trip to Africa can wait, Naples beckons.

Fewer people are watching:

Revenue is up, but audiences are down in New York City’s dance industry, a new study of the field finds.

A 20% decrease in the number of paid attendees at live performances emerged in the study, to be released Friday by the advocacy group Dance/NYC. The study looked at 172 dance organizations over a six-year period.

The audience decline appears to have been led by drops at the largest organizations, those with budgets of more than $5 million.

That is from Pia Catton at the WSJ.

What I’ve been reading

by on October 24, 2016 at 12:09 am in Books, Uncategorized | Permalink

1. Peter Ames Carlin, Homeward Bound: The Life of Paul Simon.  I hadn’t known that Simon originally recorded the Hearts and Bones album with Garfunkel, but later erased his partner’s contributions to the songs.  Nor had I known that Simon produced a stripped-down, acoustic guitar version of “Surfer Girl.”  For fans, the book is interesting throughout, and most of all the story is of an ongoing rivalry — with Art — that never became functional again once it collapsed.

2. Antonio Di Benedetto, Zama.  A 1950s Argentinean novel set in colonial times, and beloved by Roberto Bolaño; the introduction describes the author as “a would-be magical realist who can’t quite detach himself from reality.”  For fans of the disjointed tragic.  I very much liked it, but had to read the first half twice in a row to grab hold of what was going on.

3. Elizabeth Brown Pryor, Six Encounters with Lincoln: A President Confronts Democracy and its Demons.  Fresh and stimulating throughout, I found most interesting the parts of how the Commander in Chief role of the president evolved under Lincoln, and Lincoln as the first “media president.”  Highly relevant for current politics too.

Forthcoming is Joe Quirk, with Patri Friedman, Seasteading: How Ocean Cities Will Change the World.  Comprehensive and readable, though I am not a convert.

William Mellor and Dick M. Carpenter II, Bottleneckers: Gaming the Government for Power and Private Profit, is a very useful look at how laws and regulation block progress and create barriers to advancement.

I have only browsed Milan Vaishnav, When Crime Pays: Money and Muscle in Indian Politics, but it appears to be a quite interesting political economy take on the (non-optimal) transactional economies from having criminals so deeply involved in Indian politics.

Minxin Pei, China’s Crony Capitalism: The Dynamics of Regime Decay, takes a close look at Chinese corruption, based on a detailed study of two hundred cases.

Even more inventive computer crooks have used online pornography as a reward for human web surfers who break the Captcha…

Here is the John Markoff NYT piece, very interesting throughout.  Imagine an evil AI agent that can mimic your voice and call your loved ones and…

Sunday assorted links

by on October 23, 2016 at 1:17 pm in Uncategorized | Permalink

The deal may “feel wrong” to a lot of people, but for the regulators it ought not to be a big deal:

AT&T’s proposed acquisition of Time Warner…is considered “vertical” because the two companies largely do not compete against each other but operate on the same supply chain.

This is the bottom line:

“By standard antitrust metrics, this deal should be O.K. in Washington,” said Paul Gallant, a technology, media and telecommunications policy analyst with Cowen & Company. “But the Democratic Party is moving left, and if Clinton wins, this could become an early test for her ‘tougher on business’ rhetoric.”

The negative arguments are speculative or quite a stretch:

AT&T could make it more expensive for its competitors to gain access to Time Warner’s content or give preferential treatment to its own programming, said John Bergmayer, senior counsel at Public Knowledge, a digital rights advocacy group.

That is all from Leslie Picker and Cecilia Kang at the NYT.  I would stress that “entertainment” and “content” are sectors where choices have exploded more or less without precedent.  If the goal is to stop Time-Warner content from spreading to multiple sectors of the consumer media universe, I don’t see this one as a winner.

More generally, it is hard to see where the efficiencies from the deal are supposed to come from.  About the recent Bayer and Monsanto proposed merger I wrote:

There is a well-known academic literature, dating to the early 1990s, showing that acquiring firms usually decline in value after tender offers, especially after the biggest deals. Mergers do not seem to make companies more valuable or efficient.

Why then do so many mergers and acquisitions happen? Well, some of them do pay off (Google buying YouTube), but also many managers engage in empire-building by increasing the size of their companies, even at the expense of the shareholders. Another possibility is what economists call “winner’s curse,” namely that the winner of an auction or contest or bidding war tends to be the person or institution most optimistic, and in fact overly optimistic, about the value at stake.

So from a social point of view, I doubt if there is so much at stake here.

Addendum: Matt Yglesias comments.  And here is FT coverage.