Almost certainly not:

While shareholders have strong incentives to limit value-destroying perquisite consumption, it is challenging to identify such perquisites. Many corporate assets that enable forms of perquisite consumption also provide operational benefits. Corporate jets represent a potent example. We find business-related flights increase firm performance. Our results also highlight the channels through which jet use can either enhance or destroy firm value. Consistent with the benefits of information gathering and monitoring, firms with soft and complex information that is difficult to transmit remotely are more likely to fly to company subsidiaries and plants, and these flights positively affect firm value. In contrast, among firms with weak governance structures where flights are more likely motivated by agency factors, jet use is more likely to be value-decreasing. The ability to differentiate has important implications in today’s activism environment.

The full piece is by Lian Fen Lee, Michelle Lowry, and Susan Shu, via the excellent Kevin Lewis.


…we find that the between-state migration rate for individuals in occupations with state-specific licensing exam requirements is 36 percent lower relative to members of other occupations. Members of licensed occupations with national licensing exams show no evidence of limited interstate migration.

That is from Janna E. Johnson and Morris E. Kleiner in the NBER working paper series.  Here are ungated copies.

…a recent report by Yale University concluded the country is suffering the highest rate of homelessness in the developed world with 40,000 people, nearly 1 per cent of the population, living on the streets or in emergency housing or substandard shelters.

…“The big change in homelessness is the number of working families struggling to find homes and pay rent,” says Ms Rutledge, who adds the situation is the worst she has seen in her 13 years working in homeless services in Auckland. Nationwide, some 5,844 people were on the social housing waiting list in September, a 42 per cent increase on the same month two years ago.

This FT article indicates the country will respond by banning foreign purchases of Kiwi homes — I guess the country is too crowded to allow for an elastic supply response.

Most of the Tories are happy they found a semi-workable version of the deal.  They pay a big divorce bill to the EU, have a long transition period, opt for “regulatory standardization with the EU” for the whole UK, as enforced by the need to avoid a hard border in Ireland, and over the longer term end up with a customs union and free trade agreement of Norway-like nature.

In other words, they pay a lot of money, lose a seat at the table, and don’t significantly increase the policy autonomy of the country.  In the subsequent bargaining over the details, the EU still holds most of the cards.  Here are a few observations:

1. This represents an almost complete “fold” of the pro-Brexit stance, though like so many other political issues of the Anglo-American day it has become more about exerting one’s will over the opposition than achieving a very particular exit path or even outcome.  One group in British society has won quite a major victory in symbolic terms, namely it has been shown that the country has agreed to leave.

2. At this point, the chance of Brexit being reversed in the short term is very slim.  The anti-Brexit forces know that if this deal falls apart, they could end up with something much worse.  That said, the chances of a medium-term reversal may be higher.  Come the next election, it will still feel as if the UK is in the EU.  The transition period could be extended, and then extended again.  And then…

3. With the current deal, assuming it sticks, the chance of the UK itself unraveling is small.

4. The remaining pro-Brexit case is simply that the UK has limited its entanglement with the EU legal system and a possible future of full federal union.  That’s worth something, but still I am pro-Remain.

5. Real estate in Northern Ireland remains significantly undervalued.

6. the EU really has shown it has a fairly strong and indivisible commitment to the “Four Freedoms,” on migration much more than I would have expected.  You can debate whether this makes the rest of the union more or less stable over the longer term, but for sure it does one of those two things.

Here is a good piece on the Irish border issues.

Switzerland is a highly diverse society, especially among language groups, and with immigration it is becoming even more diverse. Yet Switzerland is also very peaceful. Why? The answer offered in this paper Good Fences created by geography, I find somewhat depressing. I would focus more on political decentralization as an explanation, that too is a function of geography but unlike geography it can be transplanted. I’m in Switzerland this week:

We consider the conditions of peace and violence among ethnic groups, testing a theory designed to predict the locations of violence and interventions that can promote peace. Characterizing the model’s success in predicting peace requires examples where peace prevails despite diversity. Switzerland is recognized as a country of peace, stability and prosperity. This is surprising because of its linguistic and religious diversity that in other parts of the world lead to conflict and violence. Here we analyze how peaceful stability is maintained. Our analysis shows that peace does not depend on integrated coexistence, but rather on well defined topographical and political boundaries separating groups, allowing for partial autonomy within a single country.

In Switzerland, mountains and lakes are an important part of the boundaries between sharply defined linguistic areas. Political canton and circle (sub-canton) boundaries often separate religious groups. Where such boundaries do not appear to be sufficient, we find that specific aspects of the population distribution guarantee either sufficient separation or sufficient mixing to inhibit intergroup violence according to the quantitative theory of conflict. In exactly one region, a porous mountain range does not adequately separate linguistic groups and that region has experienced significant violent conflict, leading to the recent creation of the canton of Jura. Our analysis supports the hypothesis that violence between groups can be inhibited by physical and political boundaries. A similar analysis of the area of the former Yugoslavia shows that during widespread ethnic violence existing political boundaries did not coincide with the boundaries of distinct groups, but peace prevailed in specific areas where they did coincide. The success of peace in Switzerland may serve as a model to resolve conflict in other ethnically diverse countries and regions of the world.

Contrary to what many people will insist, it’s now possible to eat excellent Mexican food, including tacqueria-style tacos, in D.C., Northern Virginia and nearby Maryland. But this is not the result of a sudden influx of Mexican migrants — long an underrepresented group in the D.C. area — into the dining scene. Rather, earlier Mexican migrants are assimilating, opening larger businesses and spreading quality versions of their food to more parts of this country, just as hamburgers and pizzas earlier transcended their regional origins. This development is consistent with research showing that Mexican-Americans are assimilating more rapidly than previously we had thought. So the next time California, Texas or Arizona snobs complain about Mexican food offerings on the East Coast, tell them it’s better than they think.

The D.C. area also has some stagnating ethnic cuisines. Vietnamese food has continued to penetrate the market in Texas and Oklahoma, but in the Mid-Atlantic region mainstream Vietnamese restaurants seem to be in slight retreat. Vietnamese pho soups and banh mi sandwich shops are popular, and those dishes are feeding into fusion cuisine. But the full-menu restaurants don’t compete well with Thai and Chinese offerings. I am reminded of the Upper East Side of Manhattan, which decades ago had fine and reasonably authentic German restaurants, but now they are mostly gone or are shells of their former selves. In the D.C. area, Bolivian is another cuisine that’s holding steady but not advancing in either the number of restaurants or the popularity with non-Bolivian customers.

The broader lesson is that America isn’t going to become endlessly more diverse, whether in its culinary offerings or otherwise. There are natural limits to these processes, and some are self-reversing as immigrants either assimilate or reach a peak influence on the broader American culture. In dining markets for the last 10 years as a whole, I would say the biggest development has been the spread of high-quality hamburgers and pizzas to all price ranges and dining styles, not the growth of cuisines cooked by recent immigrants.

Here is the rest of the column.

Chicago fact of the day

by on December 8, 2017 at 12:31 pm in Economics, History | Permalink

Chicago in 1850 was a muddy frontier town of barely 30,000 people. Within two decades, it was 10 times that size. Within another two decades, that number had tripled. By 1910, Chicago — hog butcher for the world, headquarters of Montgomery Ward, the nerve center of the nation’s rail network — had more than two million residents.

That is Emily Badger on what happened to American boomtowns, via David Levine.  p.s. this doesn’t happen any more.

Adam Smith on Occupational Licensing

by on December 7, 2017 at 11:26 am in Economics, Law | Permalink

Adam Smith warned that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Although Smith’s warning is often quoted, few people know that what Smith was talking about was occupational licensing. At the time Smith wrote, tradesmen such as weavers, hatters, and cutlers (metalworkers) monopolized their industries by limiting entry to students who had served long apprenticeships under a master, and tradesmen also limited the number of students a master could teach. Seven-year apprenticeships had been required in Britain since the 1563 Statute of Artificers. In Smith’s time, however, occupational licensing was beginning to fall apart because the 1563 law had been interpreted to apply only to the trades listed in 1563 and not to the new trades then arising with the Industrial Revolution. The act was finally repealed in 1813, in part because of Smith’s influential attack.

Occupational licensing is also undergoing great changes in the United States today—but in the opposite direction of those in Smith’s time.

That is the introduction to the Undertaker’s License a Cato Research Brief on my paper with Brandon Pizzola on occupational licensing in the funeral services industry.

India’s government has expanded a scheme offering payment incentives to Hindus who marry members of the country’s poorest and most oppressed caste, the Dalits.

A scheme introduced in 2013 offered 250,000 rupees (£2,900) to encourage Hindus from higher castes to marry members of the “untouchable” community, in the hope that it would help to remove the stigma of intercaste marriage and foster greater social cohesion.

To qualify, the annual income of the spouse from the high caste had to be less than 500,000 rupees (‎£5,800).

The government envisaged about 500 such marriages annually, but less than 100 have taken place each year.

On Wednesday, the Ministry of Social Justice and Empowerment announced it would scrap the income ceiling, and said all couples in which one spouse is from the Dalit caste would receive the cash incentive.

Here is the article, via Eric D., also read the last few paragraphs.

I Hate Flexible Spending Accounts

by on December 6, 2017 at 7:38 am in Economics | Permalink

I hate “flexible” spending accounts, i.e. those accounts where you put say $1000 in tax-free but you then must submit a bunch of health or education receipts to claim the money–and the “benefits manager” tells you half of the receipts you submitted are no good so you have to trawl through your files to find more–or lose the money. The whole process is demeaning. My hatred of this process, however, pales in comparison to that of Scott Sumner who gives a correct analogy:

Imagine a government that took 10% of each person’s income, and put in in a wooden box. The box was placed at the end of a 10-mile gravel road. Each citizen was given a knife, and told they could crawl on their hands and knees down the road, and then use the knife to cut a hole in the box, and retrieve their money.

Scott’s point is twofold. First, there is a lot of waste in crawling down the road. Second, taken in isolation, it looks like the plan at least offers people an option and so, in isolation, flex accounts and their ilk appear to benefit taxpayers. In the big picture, however, the total amount taken in taxes is somewhat fixed by politics and economics so if we got rid of the spending accounts, taxes would probably fall in other ways that are difficult to predict but nonetheless real.

Some want to crawl down the gravel road, fearing that if they abolish the program the government will not reduce their tax rates, instead the money in the box will be diverted to welfare for the poor, or higher salaries for teachers. I can’t deny that this might occur, but if we don’t even TRY to build a good country, how can we possibly succeed? Isn’t it better to try and fail, rather than not even try?

I agree with Scott. If I am going to be forced to pay taxes I’d like to hand over my cash standing like a man and not be given the option of crawling to recoup some bills the tax collector magnanimously throws on the floor.

In the final video in our Game of Theories mini-class, Tyler puts all the theories together to examine the great recession.

A few of you have written me to ask what I think of Paul Krugman’s recent posts on tax reform and evaluating it by gnp rather than gdp, the latter being an emphasis in the GOP literature.  Paul notes correct that a lower corporate rate will attract foreign investment, and the returns to that investment, by definition, will not accrue to American citizens.  So far, so good.

Paul reproduces the following graph for the Czech Republic, ratio of gnp to gdp:

If the GOP literature focuses on gdp, it is fine enough to criticize it on that basis.  What worries me, however, is that the corrective doesn’t go nearly far enough.  Gnp isn’t the right standard either, nor is gnp/gdp, rather it is welfare, either nationally or globally.

From that gdp/gdp ratio graph, you might come away with a grim view of life in the Czech Republic, but consider this cheerier picture of consumption, which nearly triples over a twenty year period:

Pretty awesome.  And under the standard story of the Czech economy, investment from abroad, most of all from Germany, has helped drive those gains.  Germany invested more, that boosted wages, improved the local political economy, and transferred some technology and entrepreneurial skills.  It is standard international economics, or for that matter Solow model, that capital-rich, lower-return economies should invest in their poorer peripheries (which is not to say it always works out that way).

It’s entirely fair to note that Czech household debt to gdp has risen to about thirty percent.  Still, in the U.S. it is about eighty percent, so the Czechs are not in dire straits just yet.  Private debt to gdp seems to run about 136 percent, compared to about 200 percent in the U.S.

Of course, this still could end up as a bad deal for the Czechs.  They might waste their foreign investment, the accompanying wage gains, the associated external benefits, and end up having to snap back their consumption and see their whole country owned by Germany, China, and others.  But that’s not the baseline case.  The default assumption is that these are gains from trade like other such gains, in this case gains from trading with foreigners who wish to invest.  They are not lesser gains or gains to somehow be subtracted from the overall calculus.

Here is a useful point of contrast.  Let’s say I advocated high taxes on foreign trade, on the grounds that “half of the gains from those trades are shared with foreigners,” and therefore we ought to, post-tariff, trade more with fellow citizens, so that only Americans get those gains.  We all know why that argument generally is wrong, noting there are some second best cases where tariffs can improve welfare.  It’s still wrong when the trades involve foreign investments.

So it is misleading to induce people to mentally downgrade foreign investment as a source of welfare gains.  I get that Krugman doesn’t quite say that, but that is the impression his discussion and diagram produces on the unwary.  Technically, he might only be criticizing the Republicans internally, using their own gdp standard.  The actual produced impression is to cause people to doubt that a lot of foreign capital inflow fully counts as a gain from trade.

America of course is in a quite different position than is the Czech Republic.  But the gains from foreign investment into the United States also ought not to be downgraded, either explicitly or by implied presumption.

The Interstate 66 toll lanes opened Monday in Washington’s Northern Virginia suburbs with prices so steep they could be among the highest drivers have paid for the privilege of traveling on a state-owned highway in the United States.

Tolls in the high-occupancy toll lanes hit $34.50 — or close to $3.50 a mile — to drive the 10-mile stretch from the Beltway to Washington during the height of the morning commute.

Bravo, but we’ll see how this develops.

That is the topic of my latest Bloomberg column, here is the opening bit:

I’ve seen hundreds of articles on President Donald Trump and trade, but the real significance of the Trump economic revolution — for better or worse — is a focus on investment. There is no coordinating mastermind, but if you consider the intersection between what the Trumpian nationalists want and what a Republican Congress will deliver, it’s this: wanting to make the U.S. a new and dominant center for investment, including at the expense of other nations.


In essence, a new kind of supply-side economics has been invented. The theory of the 1980s focused mainly on individuals, and lowering the tax rates they faced on labor income and capital gains. Cutting these rates was supposed to mobilize the power of those individuals, through more work or more investment. The idea today is that the real power of mobilization comes through corporate associations. Assuming the tax bill passes, that theory is about to get a major test.

Strikingly, the tax bill and the trade policies of the Trump administration can be viewed as having a similar underlying philosophy, whether entirely intended or not. One of the president’s first official acts was to withdrawal from the Trans-Pacific Partnership. Although I favored that agreement, as did most other economists, it’s worth considering what the most intelligent nationalist case against the TPP looks like. It’s not about trade, because the deal wouldn’t have affected tariff rates faced by Americans very much (exports of beef to Japan aside). Rather, the TPP would have given American certification to Vietnam, Malaysia and eventually other emerging economies as stable repositories of foreign investment from multinationals. That could in turn draw investment away from the U.S.

Do read the whole thing, it is my favorite recent piece by me.

That is studied by Renkin, Montialoux, and Siegenthaler in a recent paper, which is also a job market paper for Tobias Renkin from the University of Zurich.  Here is the abstract:

We study the impact of increases in local minimum wages on the dynamics of prices in local grocery stores in the US during the 2001-2012 period. We find a signifi cant impact of increasing minimum wages on prices in grocery stores. Our baseline estimate of the minimum wage elasticity of grocery prices is 0.02. This magnitude is consistent with a full pass-through of cost increases into prices. We show that price adjustments occur mostly in the months following the passage of minimum wage legislation rather than at the actual implementation of higher minimum wages. This forward-looking pattern of price adjustments is qualitatively consistent with pricing models that feature nominal rigidities. We fi nd no differential price effect for products consumed by poorer and richer households, and no evidence for demand effects. Our results suggest that consumers rather than firms bear the cost of minimum wage increases. Moreover, poor households are most negatively affected by the price response. Price increases in grocery stores alone offset at least 10% of the nominal income gains of the poorest households.

Of course this also would suggest the sector is relatively competitive.  And if you are wondering, here is the full slate of job candidates from Zurich.