Economics

Today is Asteroid Day, the anniversary of the largest asteroid impact in recent history, the June 30, 1908 Siberian Tunguska asteroid strike. The Tunguska asteroid was only about 40 meters in size but the impact was 1000 times more powerful than the Hiroshima nuclear bomb.

Large asteroid strikes are low-probability, high-death events–so high-death that by some estimates the probability of dying from an asteroid strike is on the same order as dying in an airplane crash. To mark asteroid day, events around the world, including here at the observatory at George Mason University, will discuss asteroids and how we can protect our civilization.

Tyler and I are signatories to the 100X Declaration which reads in part:

There are a million asteroids in our solar system that have the potential to strike Earth and destroy a city, yet we have discovered less than 10,000….

Therefore, we, the undersigned, call for…A rapid hundred-fold acceleration of the discovery and tracking of Near-Earth Asteroids to 100,000 per year within the next ten years.

I am also a contributor to an Indiegogo campaign to develop a planetary defense system–yes, seriously! I don’t expect the campaign to succeed because, as our principles of economics textbook explains, too many people will try to free ride. But perhaps the campaign will generate some needed attention. In the meantime, check out this video on public goods and asteroid defense from our MRU course (as always the videos are free for anyone to use in the classroom.)

By the way, can you identify the easter egg to growing up in the 1980s?

You’ll find it here (PDF), co-authored with Ranjit Teja and Andrew Wolfe.  Here is a bit of the introductory summary:

Structural reforms

Restoring growth requires restoring competitiveness.  Key here is local and federal action to lower labor costs gradually and encourage employment (minimum wage, labor laws, and welfare reform),  and to cut the very high cost of electricity and transportation (Jones Act). Local laws that raise input costs should be liberalized and obstacles to the ease of doing business removed. Public enterprise reform is also crucial.

Fiscal reform and public debt.

Probably the most startling finding in this report will be that the true fiscal deficit is much larger than assumed. Even a major fiscal effort leaves residual financing gaps in coming years, which can be bridged by debt restructuring (a voluntary exchange of existing bonds for new ones with a longer/lower debt  service  profile). Public enterprises too face financial challenges and are in discussions with their creditors.  Despite legal complexities, all discussions with creditors should be coordinated.

Institutional credibility.

The legacy of weak budget execution and opaque data – our fiscal analysis entailed many iterations – must be overcome. Priorities include legislative approval of a multi-year fiscal adjustment plan, legislative rules on deficits, a fiscal oversight board, and more reliable and timely data.

If I were a Puerto Rican considering statehood…I know how I would vote.

For the pointer I thank Felix Salmon.

Joseph Stiglitz writes:

It is hard to advise Greeks how to vote on July 5. Neither alternative – approval or rejection of the troika’s terms – will be easy, and both carry huge risks. A yes vote would mean depression almost without end. Perhaps a depleted country – one that has sold off all of its assets, and whose bright young people have emigrated – might finally get debt forgiveness; perhaps, having shriveled into a middle-income economy, Greece might finally be able to get assistance from the World Bank. All of this might happen in the next decade, or perhaps in the decade after that.

By contrast, a no vote would at least open the possibility that Greece, with its strong democratic tradition, might grasp its destiny in its own hands. Greeks might gain the opportunity to shape a future that, though perhaps not as prosperous as the past, is far more hopeful than the unconscionable torture of the present.

I know how I would vote.

Is there economic hope for men?

by on June 29, 2015 at 1:29 pm in Economics, History | Permalink

Allison Schrager has a new piece on that topic in Playboy, and with a new (old) idea, here is one part:

Harvard economist Lawrence Katz thinks that when the economy shifts, those who lose out experience “retroactive unemployment” in pursuit of jobs that no longer exist; however, he anticipates a bright future for men in the new economy. As an expert in the ways technology affects the middle class, Katz predicts the rise of the “new artisan” as a substantial trend in middle-class employment.

His theory holds that technology will commoditize and cheapen products in all industries but that artisanal workers will offer a superior interpersonal experience coupled with unique goods and services, commanding premium prices in turn. Men, he notes, are especially well suited to such roles. “These kinds of jobs go back to colonial times,” Katz says. “Individuals brought their own ingenuity and creativity to provide small-scale, high-quality products. In the 19th century they were displaced by mass production, but technology is already bringing a resurgence of this type of work.”

…If Katz’s prediction about new artisans comes to pass, the ways men and women fit into the economy will come to complement each other. Their roles will change, in some ways becoming more traditional and in others less: Women may be likelier to spend their careers in nine-to-five corporate positions, enjoying the regular hours, benefits and predictable pay those jobs entail. Forty-nine percent of women already work in firms with more than 500 employees, compared with 43 percent of men, and their share of the corporate pie is growing. That certainty will empower men to take on less predictable but possibly higher-paying work in self-employment.

A world in which men strive to learn new skills and take on riskier, entrepreneurial household roles may even prove more fulfilling than office work—but this requires changing our definition of a “good job.” Expecting men to be better-educated, office-work-oriented breadwinners is an outmoded idea. The artisan of the future will still be skilled and possess just as much potential to provide for his family. The technological revolution is yet another turn in the cycle of economic progress, and workers of both genders must learn to adapt. The end of men is not nigh; the end of our dated notion of work, however, is.

I believe the link would count as “safe for work,” but do note you may get a Playboy pop-up as I did, and there are sidebar ads, no full nudity but still this is Playboy beware if need be.

Tweets to ponder

by on June 29, 2015 at 10:58 am in Current Affairs, Economics | Permalink

The main euro Q is whether the problem is Greece (so kicking them out solves problem) or is misaligned exch rates (so someone will be next)

That is from Austan Goolsbee.

If you put Greek total debt in perspective, it’s smaller than that of many other EU nations, including Portugal.  And that is as a percentage of gdp.  Furthermore most of the remaining Greek debt is held by public sector institutions.

The difference of course is that Greece is being run by The Not Very Serious People.  Portugal is often described as the next weakest link in the eurozone, but Portuguese politics are not nearly so…vivid.  The amount of fiscal consolidation they have done is more or less accepted by the public.  That makes Portugal more likely to survive, and it also makes the EU more willing to bail out Portugal, and extend any bailout if needed.

The performance of Syriza won’t encourage European voters to take chances on other less tested, left-wing parties, and that also militates against contagion.

(In the meantime, I don’t understand why Anglo-American left-wing intellectuals have been egging on the Syriza performance.   Even if you think the current mess is mostly Germany’s fault in normative terms, the marginal product of the Syriza government still has been catastrophically negative.  It wasn’t long ago that Greek banks were raising fresh equity and were said to have recovered.  Here is Krugman’s defense, I find Anders Aslund more persuasive, furthermore Grexit would mean more austerity not less.)

For contagion, here are a few possible problems:

1. If Greece does reasonably well after Grexit, many others will ask why should they not follow suit and that could turn into a self-fulfilling prophecy.  I’ll bet against that, but it’s worth mentioning.  It also would take a while to develop.

2. As Greece exists, the ECB has to express  a strength of commitment to the other debt-ridden nations.  Delivering the right message is tricky here, because for legal and public opinion reasons the ECB cannot make the kind of unconditional commitments the Fed can.  So markets might become unhappy with the decline in creative ambiguity at the ECB.  I believe the ECB can finesse this one — in essence the message “we’ll help any EU government which is more responsible than Syriza” is fairly credible and in fact is already being signaled by the Eurogroup.  So I’ll bet against this problem too, but still it could happen.

3. If only for geopolitical and also humanitarian reasons, the EU cannot wash its hands of Greece, even if Greece leaves the EU.  But deciding how to deal with Greece might bring considerable disagreements among the remaining eurozone nations, as might the attempt to spell out exit procedures.  Festering, emotional issues are not good for dysfunctional political unions, and a lot of the “hold the line” solidarity might melt away with Grexit.

4. There might be a very slow form of contagion as the reversibility of the currency union becomes better and better known and people start seeing it as little more than a currency board arrangement.  As with #3, that could become an ongoing problem, still it doesn’t quite seem dramatic enough to produce rapid contagion.

Here is my previous post on the topic.  Robin Wigglesworth surveys a variety of differing views on contagion and other short-run effects.  I wrote this post last night, so if I am wrong it might already be evident by now.

In our textbook, Tyler and I write:

Farmers use the subsidized water to transform desert into prime agricultural land. But turning a California desert into cropland makes about as much sense as building greenhouses in Alaska! America already has plenty of land on which cotton can be grown cheaply.  Spending billions of dollars to dam rivers and transport water hundreds of miles to grow a crop which can be grown more cheaply in Georgia is a waste of resources, a deadweight loss. The water used to grow California cotton, for example, has much higher value producing silicon chips in San Jose or as drinking water in Los Angeles than it does as irrigation water.

In Holy Crop, part of Pro-Publica’s excellent, in-depth series on the water crisis the authors concur:

Getting plants to grow in the Sonoran Desert is made possible by importing billions of gallons of water each year. Cotton is one of the thirstiest crops in existence, and each acre cultivated here demands six times as much water as lettuce, 60 percent more than wheat. That precious liquid is pulled from a nearby federal reservoir, siphoned from beleaguered underground aquifers and pumped in from the Colorado River hundreds of miles away.

…Over the last 20 years, Arizona’s farmers have collected more than $1.1 billion in cotton subsidies, nine times more than the amount paid out for the next highest subsidized crop. In California, where cotton also gets more support than most other crops, farmers received more than $3 billion in cotton aid.

…If Arizona’s cotton farmers switched to wheat but didn’t fallow a single field, it would save some 207,000 acre-feet of water — enough to supply as many as 1.4 million people for a year.

…The government is willing to consider spending huge amounts to get new water supplies, including building billion-dollar desalinization plants to purify ocean water. It would cost a tiny fraction of that to pay farmers in Arizona and California more to grow wheat rather than cotton, and for the cost of converting their fields. The billions of dollars of existing subsidies already allocated by Congress could be redirected to support those goals, or spent, as the Congressional Budget Office suggested, on equipment and infrastructure that helps farmers use less water.

“There is enough water in the West. There isn’t any pressing need for more water, period,” Babbitt said. “There are all kinds of agriculture efficiencies that have not been put into place.”

The consumers, most of all.  But how about amongst the workers?  I think you have to slot French taxi drivers under “don’t benefit.”  And otherwise?  That is the topic of my latest New York Times column for The Upshot:

On the positive side, the so-called sharing economy allows workers to use their time more flexibly. Drivers can earn money without working full time, and without having to wait around at taxi stands for the next passenger. The workers can use their newly acquired spare time for other purposes, including studying for college, teaching themselves programming or simultaneously offering themselves out for different sharing services: If no one wants a ride, go help someone with repairs around the house.

In short, these developments benefit those workers who are willing and able to turn their spare time to productive uses. These workers tend to be self-starters and people who are good at shifting roles quickly. Think of them as disciplined and ambitious task switchers. That describes a lot of people, but of course, it isn’t everybody.

That’s where some of the problems come in. Uber drivers are much more likely to have a college degree than are taxi drivers or chauffeurs, according to the Hall and Krueger study. It found striking differences between the two groups: 48 percent of Uber drivers have a college degree or higher, whereas that figure is only 18 percent for taxi drivers and chauffeurs.

Only some workers benefit when each hour, or each 15-minute gap, is up for sale. One way to put the general principle is this: The more efficient market technologies become, the more important are human capabilities and backgrounds in determining who prospers and who does not.

The piece offers other ideas of interest, including about education.  For instance, corporate investments in worker training may decline as the likelihood of freelance work rises.  That too favors self-starters, who can learn on their own.  Do read the whole thing.

atmline

The source is here.  One television source is claiming 400 millions euros have been withdrawn from ATMs since the referendum was announced.

That is the new IEA book from Nima Sanandaji, freely available here (pdf), introduction by Tom G. Palmer.  Here is one short bit:

The descendants of Scandinavian migrants in the US combine the high living standards of the US with the high levels of equality of Scandinavian countries. Median incomes of Scandinavian descendants are 20 per cent higher than average US incomes. It is true that poverty rates in Scandinavian countries are lower than in the US. However, the poverty rate among descendants of Nordic immigrants in the US today is half the average poverty rate of Americans – this has been a consistent finding for decades. In fact, Scandinavian Americans have lower poverty rates than Scandinavian citizens who have not emigrated. This suggests that pre-existing cultural norms are responsible for the low levels of poverty among Scandinavians rather than Nordic welfare states.

The book has many other points of interest.

Luddite Violence

by on June 26, 2015 at 7:47 am in Current Affairs, Economics | Permalink

Don’t make the mistake of thinking the Paris riots against Uber are worker versus capitalist, the attacks are rentiers versus capitalists and worker versus worker.

UberParis

More pictures here.

I have not been a fan of Obamacare, which I consider to be a highly inefficient form of wealth insurance.  Nonetheless, had this decision gone the other way at this point we would have ended up with something worse, or ended back at “Obamacare as know it,” but only after a lot of political stupidity and also painful media coverage.  So on net I take this to be good news, although arguably it is bad news that it is good news.

From the decision, insurers gained $3 billion in market value, and hospital stocks surged about ten percent, make of that what you will.

I found the remarks of Robert Laszlewski to be most to the point.  Philip Wallach had some excellent legal and constitutional points, see also Cass Sunstein.  I am very much a legal outsider, but it seems to me this does indeed rejigger something or other looking forward.

Elsewhere in the world, Schaueble does his best Scalia impression and tells us that June 30 is June 30, not July 1.  Greece hasn’t exploded — yet — and everyone is wondering how much time is left on the shot clock.  I’m still predicting an agreement, albeit one which will break pretty quickly.

TPP received fast track approval.

It’s been one of the best political weeks in years, although disconcertingly most of the good news has been avoiding even worse outcomes, not actual forward political progress of the kind one would like to be celebrating.

In Berlin, you can rent the smallest house in the world for one euro a night.  And here is a baby owl, learning to fly, or so one would expect.

Apparently the institutionalization of small-scale food foraging is part of the new food chain for restaurant supply, and it has become an “intensely secret” and “ultracompetitive” world:

FreshDirect, the online grocery-delivery service, offers packs of foraged lambsquarters for $4.99 each. Chef David Waltuck, who’s bought ingredients from foragers at his New York restaurants since the ’70s, says the picking operations have gotten more sophisticated to keep up with the market. “Foragers sell to purveyors now,” he says. “It became more of a business. Back in the early days, there was nothing like that.”

With the explosion in popularity, though, the foragers themselves have had to become even more protective of their wares. “You’re looking at limited resources,” says Matt Parker, a West Coast–based purveyor of foraged ingredients who works with a small network of gatherers and sells to restaurants such as Spago and Gjelina. “Foragers live and die by the seasons and what’s available, so of course they are protective of their spots — that’s how they make a living.” Parker sustains a roster of “seven to nine guys, depending on how reliable they want to be,” but none will reveal their “honey grounds” to him. Waltuck adds, “They might take you out with them, but they’ll blindfold you.” Indeed, when another prominent New York chef offered to send me out with his preferred forager in Jersey’s Delaware Water Gap, he agreed to do so only if I’d wear a pillowcase over my head for the entire car ride. Eventually, the forager got cold feet and reneged on the deal altogether.

That is from Edna Ishayik, via MR reader Jeremy Yamada.

Finance and Growth

by on June 25, 2015 at 8:15 am in Economics | Permalink

The rough consensus until recent years has been that finance increases growth. The great recession has led a number of researchers to revisit that result and several papers now report that finance increases growth just up until a point and then turns negative. William Cline, however, has a short but elegant rebuttal. Using the same basic methods, Cline finds that doctors per capita, R&D technicians per capita, and fixed telephone lines per capita all show a positive effect on growth when GDP is low but a negative effect when GDP is high.

Before you turn on your thinking hats to “explain” these results consider that growth tends to slow as GDP increases (moving from catching up to cutting edge growth) and some of the growth slowdown is inevitably picked up by a quadratic term in some other variable that is increasing.

Cline summarizes:

The recent studies’ finding that “too much finance” reduces
growth should be viewed with considerable caution. The reason
is that there is an inherent bias toward a negative quadratic term
in a regression that incorporates financial depth, or any other
variable that tends to rise with per capita income, along with
the usual convergence variable (logarithm of per capita income)
in explaining growth. That the results may well be unreliable is
demonstrated here by finding a statistically significant negative
quadratic term in equations that “explain” growth by spurious
influences: doctors per capita, R&D technicians per capita,
and fixed telephone lines per capita. In some situations, finance
can become excessive; the crises of Iceland and Ireland come
to mind. But it is highly premature to adopt as a new stylized
fact the recent studies’ supposed thresholds beyond which more
finance reduces growth.

Hat tip: Greg Ip.

Russ Roberts surveys the fiscal policy back and forth, and Scott Sumner also has a good post.  I’ll add this: yes there is theory, but there is also what one chose to blog about, the tone and mood and certainty of what one wrote, and what data one was looking at or emphasizing.  Those are also “tests” of one’s overall approach.  Viewed in that light, there simply isn’t any way to argue that the American or British Keynesians did well on the sequester or on the British economic recovery, in the sense of being reliable guides to what was going on at the time.  It isn’t just about “missing one number.”

And note that “frameworks” do not make predictions of their own, so it is off base to respond that Keynesian economics did better here than the Keynesians.  Part of a framework is the very human connections it requires in terms of bringing the moving parts of the model into contact with real world events and data.  An AD-AS model is just lines on a piece of paper, so Keynesian economics does in fact require that Keynesian economists can use and measure and calibrate the model in the appropriate ways.

That all said, non-Keynesian approaches have had their Waterloos too.  The point is pluralism, not to throw out the ideas of any single economist.  For a moment, forget about 2013 and think about 1973-2015.  You need quite a few analytical tools to even begin to make sense of that longer period.