Tyler Cowen

Read the recent testimony of Robert E. Hall (pdf):

Most of the decline in participation occurred among teenagers and young adults. The fi nding that these e ffects tend to be larger in more prosperous families points strongly away from much of a role for rising influence of benefi t programs, because these programs, especially food stamps, are only available to families with incomes well below the median.
So what is going on here?  Could it be “culture”?  Hall cites, suggestively, time use surveys showing that sleep and personal consumption of video are up strongly.

This is just published in the Journal of Development Economics, from Chris Bidner and Mukesh Eswaran, and the title is “A Gender-Based Theory of the Origin of the Caste System of India”:

We propose a theory of the origins of India’s caste system by explicitly recognizing the productivity of women in complementing their husbands’ occupation-specific skill. The theory explains the core features of the caste system: its hereditary and hierarchical nature, and its insistence on endogamy (marriage only within castes). Endogamy is embraced by a group to minimize an externality that arises when group members marry outsiders. We demonstrate why the caste system embodies gender asymmetries in punishments for violations of endogamy and tolerates hypergamy (marrying up) more than hypogamy (marrying down). Our model also speaks to other aspects of caste, such as commensality restrictions and arranged/child marriages. We suggest that India’s caste system is so unique because the Brahmins sought to preserve and orally transmit the Hindu scriptures for over a millennium with no script. We show that economic considerations were of utmost importance in the emergence of the caste system.

There are ungated versions of the paper here.  Here are earlier MR posts on the Indian caste system.  I think I am not enough of a rational choice theorist to believe in any explanation of this sort, still it is sometimes better to try and fail than never to try at all…

The pointer to this paper is from Michael Clemens.

Fighters for one of the factions battling for control of Libya seized the Benghazi branch of the country’s central bank on Thursday, threatening to set off an armed scramble for the bank’s vast stores of money and gold, and cripple one of the last functioning institutions in the country.

The central bank is the repository for Libya’s oil revenue and holds nearly $100 billion in foreign currency reserves. It is the great prize at the center of the armed struggles that have raged here since the overthrow of Col. Muammar el-Qaddafi in 2011.

There is more here.  And in collapsing Yemen, the Iran-funded Houthi fighters seem to have the central bank tightly under guard.  Mario Draghi does not in fact have the toughest job in the world.

From the letters page of the FT:

Sir, Whether the European Central Bank chooses to embark on a programme of sovereign QE (or quantitative easing, as it used to be known) is of little day-to-day interest to most citizens of the EU. Whether the compilers of dictionaries accept that QE is now a word in its own right — as opposed to an abbreviation — is of far more relevance to us scrabble players. Using a Q without needing a free U it would rapidly be up there with Qi (the Chinese word for life force) as one of the most useful words in the lexicon.

Richard Kemmish

Surbiton, Surrey, UK

I would think that for the foreseeable future QE would be ruled an abbreviation, not a word, although enough years of macroeconomic misery eventually could flip this the other way.

Some abbreviations, however, are acceptable Scrabble words because they have entered common parlance.

Here are other “Q without U” words which are eligible for use in Scrabble.

Arrived in my pile

by on January 22, 2015 at 1:17 pm in Books, History, Philosophy | Permalink

Ian Morris, Foragers, Farmers, and Fossil Fuels: How Human Values Evolve.

A Tanner Lecture, with comments by Richard Seaford, Jonathan D. Spence, Christine Korsgaard, and Margaret Atwood, and edited by Stephen Macedo.  Due out March 22.

John Bayley has passed away

by on January 22, 2015 at 12:12 pm in Books, Current Affairs, Education | Permalink

An Oxford Don, he wrote one of my all-time favorite books:

“Elegy for Iris” — titled “Iris: A Memoir” in Britain — appeared in 1998, when Murdoch was in the final stages of her disease. She died in February 1999 at age 79.

One obituary is here, more are here.  The book is here.

Here is an update from Japan:

Four years after the Bank of Japan set a 2 percent inflation target, price gains may still be coming up short, according to a survey of economists by Bloomberg News.

Consumer prices will rise an average 1.4 percent the fiscal year through March 2017, after failing to reach 2 percent — stripped of fresh food and a sales-tax boost — in any of the years since the goal was set, the median of 16 estimates shows. Governor Haruhiko Kuroda wanted to get there in about two years when he unleashed his record stimulus plan in April 2013.

Here are further data points from Krugman about other locales.

I am not seeking (today) to argue about liquidity traps, credibility, and the like.  Clearly the Japanese central bank can influence inflation at least somewhat, and recall the BOE helped bring inflation in at over five percent but a few years ago.  The ECB really could do much more.  But my view is this:

1. Most countries have labor market incumbents with sweet real wage deals, deals which could not be renegotiated anew today because the world has seen a repricing of labor downwards for the wealthy countries.

2. Higher rates of price inflation would cut into those deals and thus high rates of price inflation are unpopular.  Voters don’t quite understand the monetary economics here, but they have a vague sense that “inflation screws them.”

3. We are no longer at the point where two percent inflation is easy to achieve in Europe or Japan.  Central banks are doubted.  To achieve two, they would have to shoot for four, and thus announce a target of four.  Few voters wish to hear this, and furthermore a credible stab at four percent inflation might in fact bring three percent inflation or maybe more.  A non-credible central bank can indeed still debase its currency, yet the achievable targets are given by lumpy notches, not a smooth sliding scale.  In the case of the eurozone, too high an inflation target is probably illegal as well, given the sole mandate of price stability.

4. We thus end up stuck having central banks which announce a target of two percent but undershoot it.

As for Japan, here is a clue from the same article:

While Kuroda’s campaign — which has seen the BOJ’s balance sheet dwarf that of counterparts relative to the size of the economy — has spurred bank lending to the biggest jump in two decades and seen the end of outright deflation, it has yet to spark pay rises big enough to secure the 2 percent CPI target.

“It’s necessary to create an environment where wages rise sustainably,” said Kinoshita…

This also helps explain why European QE would need to be shock and awe, why it won’t be, and why it won’t help that much after all, even though it is better than doing nothing.  Few governments wish to boast they are lowering the real wages of their employed middle class citizens more rapidly than would otherwise be the case.  Reaping some extra votes from the marginally unemployed is not going to swing the electoral calculus on that one.

Let’s not blame the policymaker or the journalist.  I blame the economists who promote the notion that higher rates of inflation will boost rather than erode real wages.  That’s going to leave policymakers — and voters — waiting for a long, long time.

1. Toilet paper is shrinking, the size of the individual sheets that is.  (That is probably the closest we will get to hyperinflation.)  Does the average American really use 46 sheets a day?  That sounds like an overstatement.

In contrast to this commodity, I usually want for food portion sizes — especially ice cream — to be downsized.

2. I say both men and women are understating their number of sexual partners.  Contrary to what is portrayed in this chart, I postulate an American male average of about four.  I do not agree with the common claim that American men will overstate their number of partners.

The pointer is via Rayman.

Assorted links

by on January 22, 2015 at 2:01 am in Uncategorized | Permalink

1. In praise of The Upshot.  And profile of Pearson (the textbook and testing company).

2. A good OECD report on which policy changes actually would help overcome “secular stagnation.”

3. Japanese owl cafes.

4. How to induce people to like surrealistic art more.  Remind them of death.

5. The crowded cemeteries of Hong Kong.

swan

Is your car’s engine noise a lie?

by on January 22, 2015 at 1:48 am in Economics, Science | Permalink

Stomp on the gas in a new Ford Mustang or F-150 and you’ll hear a meaty, throaty rumble — the same style roar that Americans have associated with auto power and performance for decades.

It’s a sham. The engine growl in some of America’s best-selling cars and trucks is actually a finely tuned bit of lip-syncing, boosted through special pipes or digitally faked altogether…

Fake engine noise has become one of the auto industry’s dirty little secrets, with automakers from BMW to Volkswagen turning to a sound-boosting bag of tricks. Without them, today’s more fuel-efficient engines would sound far quieter and, automakers worry, seemingly less powerful, potentially pushing buyers away.

There is more here, from Drew Harwell.

Assorted links

by on January 21, 2015 at 2:00 pm in Uncategorized | Permalink

1. My 2006 post on how to read fast.

2. Henry Manne biography and appreciation.

3. How L.A. became a powerhouse for Chinese food.

4. Previous MR posts on Yemen.

5. Arnold Kling is right: few people understand the non-dictatorship axiom either, or the portfolio separation theorem.  And political philosopher markets in everything.

6. An Obamacare update.

7. Development is hard.

SNB tweets to ponder

by on January 21, 2015 at 11:20 am in Economics, Education, Political Science | Permalink

It’s funny how faculty who work at universities with large endowments can’t understand the decisions of the Swiss National Bank…

That one is from me.  In this kind of status-driven, bureaucratic environment, the incentive is to extend your cushion, not run it down and have to print up new money to replenish it, thereby receiving egg on your face and appearing dependent and outside the rules of the game.  You’ll do better understanding the SNB by reading Pierre Bourdieu on social capital than portfolio theory or the literature on optimal seigniorage.

I will note that university endowments are somewhat of a puzzle too (pdf) — for instance why don’t schools spend them down more, as a kind of crude political business cycle theory might suggest?

(On the other hand, just try dropping your items into a Swiss recycling bin on a Sunday.)

There is at least one big difference here: the SNB doesn’t want a balance sheet which is as large as possible, because that means both assets and liabilities.  Colleges and universities are far more likely to wish to maximize their endowments, which do not (one hopes) come with offsetting liabilities.  The “endowment” of a central bank has more to do with political chits, favors, and public impressions, backed by extreme solvency but not too big a target either.

Paul Krugman makes some good and interesting points about the comparison with Hong Kong; in my view influence capital in Hong Kong has been (ultimately) determined externally for a very long time, first Britain now China.  That gives the territory some special feasibility properties for a wide variety of issues.  Krugman is falling into a kind of sophisticated “public choice” mistake that is more frequently committed by libertarians.

In none of these cases am I suggesting that the current incentives are optimal from a social point of view.  And here is an earlier post on central banks and capital.  It is not that a partially privately-owned, cantonally owned SNB is maximizing raw seigniorage, a view which has come in for some rebuttal as of late.  Rather the partial private ownership helps account for what kind of legitimacy needs to be produced and what kinds of rules that legitimacy requires.

C’mon people, read your Gramsci!

The excellent Kevin Lewis has pointed my attention to this paper by Robertson, Yokum, Sheth, and Joiner:.  The idea will sound like common sense to an economist, namely give people some cash if they turn down special treatments of uncertain value.  The funnier thing is, there is now some evidence it might actually work:

Traditional cost sharing for health care is stymied by limited patient wealth. The “split benefit” is a new way to reduce consumption of high-cost, low-value treatments for which the risk/benefit ratio is uncertain. When a physician prescribes a costly unproven procedure, the insurer could pay a portion of the benefit directly to the patient, creating a decision opportunity for the patient. The insurer saves the remainder, unless the patient consumes. In this paper, a vignette-based randomized controlled experiment with 1,800 respondents sought to test the potential efficacy of the split benefit. The intervention reduced the odds of consumption by about half. It did so regardless of scenario (cancer or cardiac stent), type of split (rebate, prepay, or health savings account), or amount of split (US$5,000 or US$15,000). Respondents viewed the insurer that paid a split as behaving fairly, as it preserved access and choice. Three-quarters of respondents supported such use in Medicare, which did not depend on political party affiliation. The reform is promising for further testing since it has the potential to decrease spending on low-value interventions, and thereby increase the value of the health care dollar.

My concern of course is that on a larger scale eventually this would be gamed, and faux treatment offers will be generated for the purpose of transferring wealth to patients, with doctors and hospitals, one way or the other, in on the act.

China started to lend massively to Venezuela in 2007. Since then it has lent more than $45bn, of which about $20bn is still outstanding.

That is from Ricardo Hausmann at the FT.

Derek Scissors reports:

Broad money M2 breached $20tn at the end of December, a staggering 70 per cent larger than in the US, where monetary policy has hardly been tight.

There’s a tremendous amount of liquidity, the problem is no one is using it. Growth in narrow money M1 has collapsed. It was a dangerously excessive 32.4 per cent in 2009. It was a dangerously anemic 3.2 per cent in 2014.

M1 is money being held ready for use in anticipated transactions. It should correlate very well with GDP, which is a sum of transaction values. But while M1 flies around over time, GDP growth barely budges in comparison. It strains credulity that the amount of money held for use could grow at one-tenth the speed in 2014 as it did in 2009, yet growth in uses of that money (GDP) drops less than 2 points.

The FT post is of more interest generally on Chinese economic statistics.