Current Affairs

The plummeting pound is threatening UK households’ supplies of Ben & Jerry’s ice cream and Marmite spread, as Tesco, the country’s biggest supermarket, pulled dozens of products from sale online in a row over who should bear the cost of the weakening currency.

Unilever has demanded steep price increases to offset the higher cost of imported commodities, which are priced in euros and dollars, according to executives at multiple supermarket groups.

But Tesco signalled it would fight the rises, removing Unilever products from its website and warning that some of the items could disappear from shelves if the dispute dragged on. Other supermarkets have warned that they could follow suit.

Here is the full FT story.

So it’s official. As of today we are no longer a libertarian think tank. We’re neoliberals. And maybe you are too.

Here is the link.  Here Sam Bowman, the Executive Director, explains:

And I think to most people in Britain the word libertarian connotes a sort of unflexible extremeness – a preoccupation with hard-and-fast rules over policies that actually make people’s lives better. It was this misconception that allowed the Prime Minister get away with equating the libertarian right with the socialist left, as if the two were somehow comparable…

So in embracing the term neoliberal, we’re hoping that we’re being a little clearer about what we already believe in and do. We fight for free markets, property rights, globalisation and an open society, all based on real-world evidence. Those are what have given us the rich, peaceful, prosperous world we live in, and with more of them we can help to make things even better. It’s time for us neoliberals to start going on the offensive and fight for the world we have helped to create.

I do not have sufficient background on the situation to parse this, but perhaps it is also one way of signaling that they are anti-Brexit, and the word libertarian would not do that, and might even suggest they favored Brexit as a means for arriving at a more libertarian society (which by the way is not how things are running).  A neoliberal one would think favors arrangements for free trade and migration.

Addendum: Here is their home page.

Maybe so, but I have a sneaking suspicion they are not about to get much of it, not anytime soon.  Corina Ruhe reports, and I say put on your Bayesian thinking cap for this bit:

Bundesbank board member Andreas Dombret…said in an interview with Boersen-Zeitung that the revised rules, due by year-end, mustn’t disproportionately affect European banks. “Not significant means an increase of zero percent or near to zero percent; that has to be the starting point for all negotiations,” he said.

I like to negotiate that way too, when I can.  What might the French be saying?:

“We are in favor of Basel III, but we think it is unhelpful, even dangerous, to want to add layer upon layer of obligations on banks, in particular on European banks,” French Finance Minister Michel Sapin said on Monday.

Are you starting to see a pattern?  Neither the governments nor the banks would find it very simple to cough up the extra resources to boost capital.  And cross-border or other mergers would lead to higher capital requirements yet, given the way the regulations are written to penalize increases in bank size.

Did you know that the ECB gave Deutsche Bank special treatment in its recent stress tests?  Still, I think it is more likely that Deutsche Bank is a slow wasteful drain rather than the next explosive Lehman Brothers, if only because the level of financial risk paranoia is so high.

The more fundamental point is that there is significant excess capacity in European banking.  That makes it hard for DB to get back on its feet, and it may send other European banks to a similar fate, creating a chronic problem though probably not a dramatic crisis.  The bank-dependent EU economies don’t have a simple way to make their banking sectors shrink a lot more.  Whether or not this is necessary right now or rather later, either way it will feel a lot like that ill-defined concept “austerity.”

Remember this?:

“Global banks are international in life but national in death,” former Bank of England governor Mervyn King once noted.

More fundamentally, there is excess capacity when it comes to EU governments as well, a less frequently recognized point.  There is more and more governance, some of it good in fact, but it never goes away.  There are whole new levels of governance, connected to the EU.  Somewhere in the system, governance too needs to shrink.  Losing a few countries through consolidation is not possible, but in terms of the pure logic (divorced from actual fact and possibilities), there is something to be said for the idea.  And yet we are relying on governance to get the banks to shrink.  And relying on the banks to boost growth so that governance can shrink.  Relying on relying.

Get the picture?

One of Nobel prize-winner Oliver Hart’s most influential papers (co-authored with Andrei Shleifer and Robert Vishny) is on incentive design and private prisons (see Tyler’s post covering Hart’s work). Yesterday was not the day for a critique but Tyler and I do critique this paper in our principles textbook, Modern Principles. I believe that our textbook is the only principles textbook to have a chapter on contract design and we make this modern material accessible to undergraduates! Here is our explanation and critique:

Should the management of prisons be contracted out to the private sector? The
owners of a private firm have a strong incentive to cut costs and improve productivity because they get to keep the resulting profits. If a public prison cuts
costs, there is more money in the public treasury but no one gets to buy a yacht so the incentive to cut costs is much weaker.

private_prisonIn 1985, Kentucky became the first state to contract out a prison to a for profit firm. Private prisons today hold about 120,000 prisoners in the United
States, about 5 percent of all prisoners. Should efficient private prisons replace
inefficient public prisons? Three economists—Oliver Hart, Andrei Shleifer, and
Robert Vishny (HSV)—say no. HSV don’t question that the profit motive gives
private prisons stronger incentives than public prisons to cut costs—HSV say
that’s the problem! Suppose that we care about costs but we also care about
prisoner rehabilitation, civil rights, and low levels of inmate and guard violence.
What we pay for is cheap prisons, but what we want is cheap but high quality
prisons. If we can’t measure and pay for quality, then strong incentives could
encourage cost cutting at the expense of quality.

The principle is a general one, a strong incentive scheme that incentivizes
the wrong thing can be worse than a weak incentive scheme. One car dealer in
California advertises that its sales staff is not paid on commission.
 Why would
a store advertise that its sales staff do not have strong incentives to help you?
The answer is clear to anyone who has tried to buy a car. High-pressure dealers
who pounce on you the moment you enter the showroom and bombard you
with high-pressure sales tactics (“I can get you 15 percent off the sticker, but
you have to act NOW!”) may sell cars to first-time buyers, but the strategy is
too unpleasant to win many repeat customers. Car dealers who rely on repeat
business usually prefer a low-pressure, informative sales staff….
In theory, a car dealer could have strong incentives and repeat business by
paying its sales staff based on their “nice” sales tactics, but in practice it’s too
expensive to monitor how salespeople interact with clients. Cheating by the
sales staff would be difficult to detect and thus would be common. 

What about prisons? Are HSV correct that weak-incentive public prisons
are better than strong incentive private prisons? Not necessarily. HSV assume
that cutting quality is the way to cut cost. But sometimes higher quality is also
a path to lower costs. Low levels of inmate and guard violence, for example, are
likely to reduce costs. And respect for prisoner’s civil rights? That can save on
legal bills. When quality and cost cutting go together, a private firm has a strong
incentive to increase quality.

HSV may also underestimate how well quality can be measured. Measuring
output pays off more when incentives are high. Unsurprisingly, therefore,
private prison companies and government purchasers have made extensive
efforts to measure the quality of private prisons.

Finally, don’t forget that weak incentives reduce the incentive to cut costs
but they don’t increase the incentive to produce high quality! Public prisons
might use their slack budget constraints to offer high-quality rehabilitation
programs, or they might instead offer prison guards above-market wages.
Which do you think is more likely?

Nevertheless, whether HSV are right or wrong about private prisons, their
argument is clever. The usual argument against government bureaucracy is that
without the profit incentive, public bureaucracies won’t have an incentive to
cut costs. HSV suggest this is exactly why public bureaucracies may sometimes
be better than private firms.

Addendum: We don’t go through the empirical literature in the text but overall it’s not supportive of HSV. As HSV predict, private prisons appear to be cheaper than public prisons but they are not significantly cheaper and the quality of private prisons is comparable to that of public prisons and maybe a little bit higher (faint praise). Basically the government gets what it pays for.


The betting market had Trump go up from 16.8 to 19.0, with Pence falling by a fair amount.  Stock market called it a draw.  The peso observation comes from a tweet by Noah Smith.

That is my latest Bloomberg column on what is going on right now, here is an excerpt:

Right now, another collective-action problem may be damning the Republicans to a worse fate yet. If the Trump candidacy has no chance of winning or holding close, Republican turnout may collapse, thereby endangering party control of many lower political offices.

Republican turnout, and thus electoral success, might be helped if all the Republicans simply pretended that the Trump gaffe hadn’t happened. But politicians often look to their own self-interest. After Trump appears unacceptable enough in the eyes of enough relevant voters, political candidates and other party members will seek to distance themselves from him so they can try to rebuild their reputations once Trump is no longer on the ballot. You might say those individuals are finally doing the right thing, but under another reading a lot of them are acting in their personal self-interest yet again, and again to the detriment of the Republican party (though perhaps not the American citizenry).

In other words, the Republicans have been on the wrong side of game-theory logic twice, first in delaying their opposition and then later in enacting it. Those are hardly examples of getting Adam Smith’s “invisible hand” metaphor to work in their favor.

There is much more at the link.  For related analyses, here are remarks from Sam Wang.  Here are tweets from Megan McArdleHere is Paul Gowder, drawing on Timur Kuran.


That is “Bridging Home,” from Korean artist Do Ho Suh.

Haven’t you been wondering that lately?  Tridimas has a paper (link here scroll down) on that question, here is one empirical observation:

During the period 1957-2006, out of a total of 43 integration referenda, 23 were not constitutionally required but were called at the discretion of the incumbent government; 18 of these 23 resulted in a pro-integration vote as the incumbent government had sought. France has held three EU-related non-required referenda, all initiated by the President of the Republic. The UK approved EEC membership in 1975 in a non-required referendum, the only national UK referendum thus far. In 2003, seven of the nine referenda held by the new entrants to approve membership were not required. Again, none of the four referenda held in 2005 by Spain, France, the Netherlands, and Luxembourg to ratify the EU Constitutional Treaty were constitutionally mandated.

And the theory?:

In politics, some issues cause deep intra-party splits between the elected representatives of the same party rather than inter-party divisions among different parties. Constitutional issues, which concern questions of governance and national sovereignty of a state, are a prime example. It is then unlikely that the standard system of parliamentary politics will be able to resolve all those issues. On the contrary, it is more likely that the leader of the party in office will call a referendum to decide them. Ratifying changes to constitutional arrangements in a referendum confers legitimacy to their adoption (or rejection) by taking the decision away from parochial parliamentary majorities and putting it into the hands of the citizenry.

Ah, but there is risk!  Still, it is not crazy to call the referendum, even though you might rationally prefer that the whole issue disappear.

I would add a further point to that model.  Let’s say you think the core issue won’t go away of its own accord, arguably the case with both Brexit and the failed Colombian peace agreement.  The choice is not “referendum vs. no referendum,” but rather “referendum today vs. giving my successors an option on future referenda.”  And since a referendum can strengthen an incumbent, you realize that some future government might call one for self-interested reasons.  In which case you might consider risking disaster now, responding to a kind of collective action problem through time.  You may even fear that one of your successors will be irrational.  And so some moment will feel like an optimal trigger point, though of course that will involve risk and probably more risk than is socially optimal.  But is there not a preferred time to make your leap from the burning building?  The pain of landing on your arm rather than your butt is not per se an argument for nixing the choice altogether.

Alternatively, consider the Italian referendum on reforming the Senate, due in December.  The incumbent government may well lose the vote, but precisely because this is not a fundamental issue I predict they can simply continue in power, noting they didn’t have a strong mandate for change in the first place.

Here is Carlos Closa on when to call referenda.

A large share of American men between the ages of 25 and 54 who aren’t in the labor force may suffer from serious health conditions that are “a barrier to work” and suffer physical pain, sadness, and stress in their daily lives, according to research being presented next week by Princeton University labor economist Alan Krueger.

“Nearly half of prime age NLF [not-in-the-labor-force] men take pain medication on a daily basis, and in two-thirds of cases, they take prescription pain medication,” according to Krueger’s paper, Where Have All the Workers Gone?

Here is more from Peter Coy.  Here is the paper.

Getting a signing bonus is often associated with top young athletes. Now, taking a job driving a chemical truck in the U.S. can earn you a signing bonus of as much as $5,000 — and then there are also recruiting bonuses, retention bonuses and safety bonuses.

Those are the tactics that Randy Strutz, president of Quality Carriers in Tampa, Florida, is using to fill positions as unemployment lingers near the lowest level since before the last recession. The situation is cropping up across more industries in the U.S., as businesses feel increasing pressure to offer better wages and incentives to attract workers.

“It’s been a challenge to get good, qualified drivers,” said Strutz, who supervises about 2,500 truckers at the company owned by private-equity firm Apax Partners. “I expect we’ll probably have to spend more money to find applicants.”

That is from Patricia Laya.  What does it say about the job prospects for the remaining able-bodied, male unemployed?  There has been some recent coverage of video games, and incarceration, now it is time for more consideration of “can’t pass a drug test.”

The very beginning is a little slow, but I thought Ezra was one of the very best guests.  The topics include the nature and future of media, including virtual reality, the nature of leadership (including Ezra’s own), how running a project shapes your political views, a wee bit on health care, what he thinks are the Obama and Clinton models of the world, Robert Putnam’s research on the costs of diversity, the proper role of shame in society, animal welfare, and of course Ezra’s underrated and overrated, with takes on Bob Dylan, The Matrix, William F. Buckley, Joe Biden, and more.  There is no video but here is the podcast and transcript.  Here is one excerpt:

COWEN: …Now Putman, let me ask you about Putnam, and how Putnam relates to Donald Trump. As you know, Robert Putnam at Harvard, he has some work showing that when ethnic diversity goes up that there’s less trust, less cooperation, less social capital.

If you think of yourself in the role of an editor, so you have an American society, diversity has gone up, and a lot of people have reacted to this I would say rather badly — and I think you would agree with me they’ve reacted rather badly — but there’s still a way in which the issue could be framed that while diversity is actually a problem, we can’t handle diversity.

Putnam almost says as such, and do you think there’s currently a language in the media where you have readers who are themselves diverse, where it’s possible not to just be blaming the bigots, but to actually present the positive view, “Look, people are imperfect. A society can only handle so much diversity, and we need to learn this.” What’s your take on that?

KLEIN: I strongly agree. We do not have a language for demographic anxiety that is not a language that is about racism. And we need one. I really believe this, and I believe it’s been a problem, particularly this year. It is clear, the evidence is clear. Donald Trump is not about “economic anxiety.”

COWEN: A bit, but not mainly, I agree.

KLEIN: That said, I think that the way it’s presented is a choice between economic anxiety and racism. And one I don’t think that’s quite right, and two I don’t think that’s a productive way of having that conversation.

COWEN: Why don’t we have that language? Where did it go, or did we ever have it?


COWEN: You see this with Medicaid. A lot of people don’t sign up. They don’t have addresses. You can’t even get them, whatever.

KLEIN: They don’t like doctors. They’re afraid of doctors.

COWEN: This is me.

KLEIN: You’re afraid of doctors?

COWEN: “Afraid” isn’t the word.

KLEIN: Averse. [laughs]

COWEN: Maybe dislike. Averse. [laughs] They should be afraid of me, perhaps.

Definitely recommended.  The same dialogue, with a different introduction, is included in The Ezra Klein Show podcast.

A variety of points are made, here is one of mine:

Finally, on immigration you might be right about the points system but I’m not yet convinced. I say take in more high-skilled immigrants, but I wouldn’t move to a Canada-like points system. It seems the current American criteria already attract entrepreneurs. Do we really want to focus admission on more degree-holding service-sector professionals who work in industries with low rates of productivity growth? I’m not so sure.

And Noah’s response:

As for skilled immigrants, both they and Americans can switch between jobs. For example, if we import more foreign doctors, pushing down U.S. doctor salaries, more bright young Americans might choose engineering over the medical profession. So I’m not at all worried about bringing in the “wrong kind” of skilled immigrants.

Do read the whole thing.

The ashes belonged to Capote’s close friend Joanne Carson

The ashes of the author Truman Capote, who wrote In Cold Blood and Breakfast at Tiffany’s, was sold at auction for $43,750 in Los Angeles to an anonymous buyer this weekend.

The ashes, which are housed in a sealed wooden Japanese box, originally belonged to the late Joanne Carson, ex-wife of former Tonight Show host Johnny Carson. She was a close friend of Capote, who died at her Bel-Air mansion in 1984.

“We had people from Russia, Germany, China, South America and here in the U.S. who had interest in them,” President and Chief Executive of auction house Julian’s Auctions, Darren Julien, told CNN of the Sept. 24 auction. “I anticipated it could sell for over $10,000, but didn’t anticipate it going to $45,000.”

Here is one story, here are the auction records.  For the pointer I thank Bill.

Jeppe Trolle Linnet, an anthropologist at the University of Southern Denmark, argues that hygge is not the great social leveller it appears. Danes dislike acknowledging class differences, but his research finds that the habits of hygge vary by income and social status. For some, hygge is a bottle of burgundy with soft jazz on the hi-fi; for others it is a can of beer while watching football on telly. Worse, different groups are uncomfortable with others’ interpretations of hygge. Mr Linnet calls it a “vehicle of social control”, involving “a negative stereotyping of social groups who are perceived as unable to create hygge”.

…A recent report on the quality of life for expatriates in 67 countries, compiled by an organisation called InterNations, bears this out. Denmark’s own natives may rank it top for happiness, but the immigrants in the survey ranked it 60th in terms of friendliness, 64th for being made to feel welcome, and 67th for the ease of finding friends. Finishing just ahead of Denmark on the finding-friends measure was Norway, the country from which the Danes imported the word hygge. If cultures are obsessed with the joys of relaxing with old friends, perhaps it is because they find it stressful to make new ones.

That is from The Economist.

Lee Drutman at Vox reports:

If Maine Question 5 passes, Mainers will get to select up to five candidates in order of preference. If there is no majority in the initial tally of voting, and their first choice finishes last in the initial tally, their vote will be transferred to their second choice in the next tally. (In each tally, the last-place finisher gets eliminated). And if there is still no majority, and their second choice ranks last in the second tally, their vote will be transferred to their third choice, and so on, until one candidate has a majority.

Or, put another way: If one candidate wins a majority in the initial tally, there is no runoff. If no candidate wins a majority, candidates are eliminated from the bottom-up, with each eliminated candidate’s supporters going to their next-ranked choice for the following round, until one candidate has more than half of the votes. (For a video explanation of how this works, I recommend this short explainer.)

Versions of the Single Transferable Vote (STV) have been used in Ireland, Northern Ireland, Malta, Tasmania, and NYC City Council from 1937-1947

STV systems tend to make candidates more civil to each other, and less likely to attack each other’s character and ideology.  More generally, it induces politicians to cater more frequently to constituency whims and preferences, at the expense of drawing sharp contrasts across ideologies.  You don’t want the voters from the opposing ideology to rank you very low, so you’ll ease up on the insults and try to appear like a very useful centrist.  The resulting emphasis on constituency service has historically been the case in Ireland (most but not all of the time).  Similar tendencies have been observed in Tasmania and Malta, and the parties evolve to become less ideological.

Traditionally, I have not been a huge fan of STV systems, but this year they sound a bit better than usual.

You can start here on the literature on STV.