Economics

So the problem is not that austerity was tried and failed in Greece. It is that, despite unprecedented international generosity, fiscal policy was completely out of control and needed major adjustments. Insufficient spending was never an issue. From 1998 to 2007, Greece’s annual per capita GDP growth averaged 3.8%, the second fastest in Western Europe, behind only Ireland.

…Unsustainable growth paths often end in a sudden stop of capital inflows, forcing countries to bring their spending back in line with production. In Greece, however, official lenders’ unprecedented munificence made the adjustment more gradual than in, say, Latvia or Ireland.

There are many other good points at the link.  Hausmann makes this point:

Greece never had the productive structure to be as rich as it was: its income was inflated by massive amounts of borrowed money that was not used to upgrade its productive capacity.

And then the closer can only be described as an “ouch”!:

Unfortunately, this is not what many Greeks (or Spaniards) believe. A large plurality of them voted for Syriza, which wants to reallocate resources to wage increases and subsidies and does not even mention exports in its growth strategy. They would be wise to remember that having Stiglitz as a cheerleader and Podemos as advisers did not save Venezuela from its current hyper-inflationary catastrophe.

As I’ve said before, that out of control Greek government spending and borrowing has been converted into a (supposed) cautionary tale about the dangers of fiscal conservatism is one of the greatest (and most unfortunate) public relations triumphs of modern times.  That said, I would have preferred it if Hausmann had paid more attention to monetary policy.

Open English Borders

by on March 3, 2015 at 7:30 am in Economics, Law, Political Science | Permalink

I am in favor of open borders for economic and moral reasons. It’s not crazy, however, to be concerned about some of the potential consequences of immediately opening borders between countries with very different income levels, culture or history. It is crazy, however, to fear opening borders between countries with similar income levels, culture and history. Thus, I fully support the petition of the Commonwealth Freedom of Movement Organisation:

Because of the unique relationship and socio-economic bonds that the U.K, Canada, Australia and New Zealand share, we believe that each country can benefit from a free movement agreement with each other, similar to the policies of the European Union and the Trans-Tasman Travel Arrangement (T.T.T.A) between Australia and New Zealand.

We propose that the governments of the aforementioned countries finalise agreements (and inevitably, legislation) which make it possible for citizens to move freely with no restrictions regarding work permits or visa controls.

Amen to that.

The only problem with agreements like this is that the very big gains come from opening up borders between countries that are different. Still, I am for lowering transportation and transaction costs. I do hope, however, that more people will come to appreciate that the right to move is a human right and not just a right of the British and their colonial cousins.

Addendum: Open Borders Day is coming on March 16. Write about open borders–pro or con–on that day. Let’s peacefully debate.

More than 100% of the self-reported income of Greece’s professional classes is going toward paying off consumer debts.

From Mike Bird, there is more here, via MacroDigest.

Please apply and encourage students to apply to the annual Public Choice Outreach Conference!

What is the Public Choice Outreach Conference?
The Public Choice Outreach Conference is a compact lecture series designed as a “crash course” in Public Choice for students planning careers in academia, journalism, law, or public policy.

When and where is the Conference?
The 2015 Conference will be held at the Hyatt Arlington in Rosslyn, Virginia during June 12-14, 2015.

What will I learn?
Students are introduced to the history and basic tools of public choice analysis, such as models of voting and elections, and models of government and legislative organization. Students also learn to apply public choice theory to a wide range of relevant issues.

Who can apply?
Graduate students and advanced undergraduates are eligible to apply. Students majoring in economics, history, international studies, law, philosophy political science, psychology, public administration, religious studies, and sociology have attended past conferences. Advanced degree students with a demonstrated interest in political economy or demonstrated interest in political economy are invited to apply. Applicants unfamiliar with Public Choice are especially encouraged.

More information and application here.

Stone Age Britons imported wheat about 8,000 years ago in a surprising sign of sophistication for primitive hunter-gatherers long viewed as isolated from European agriculture, a study showed on Thursday.

British scientists found traces of wheat DNA in a Stone Age site off the south coast of England near the Isle of Wight, giving an unexpected sign of contact between ancient hunter-gatherers and farmers who eventually replaced them.

The wheat DNA was dated to 8,000 years ago, 2,000 years before Stone Age people in mainland Britain started growing cereals and 400 years before farming reached what is now northern Germany or France, they wrote in the journal Science.

“We were surprised to find wheat,” co-author Robin Allaby of the University of Warwick told Reuters of finds at Bouldnor Cliff.

“This is a smoking gun of cultural interaction,” between primitive hunter-gatherers in Britain and farmers in Europe, he said of the findings in the journal Science.

The find of wheat “will make us re-evaluate the relationships between farmers and hunter-gatherers,” he told Reuters.

There is more here, and the original research is here.  As I’ve said in the past, believing that early trade and globalization were more extensive than is usually believed is one of my “crank views.”

Euro area negative-yield bond universe expands to $1.9 trillion

How are things in Denmark?  Here is Eva Christensen’s loan:

And then she was told again about her interest rate. It was -0.0172 percent — less than zero. While there would be fees to pay, the bank would also pay interest to her. It was just a little over $1 a month, but still.

Here is Paco.  Here is Bryan Caplan.

Over at Vox, Mr. Money Moustache notes:

The first trick is to remind yourself that buying something — pretty much anything — is very unlikely to improve your long-term happiness. Science figured this out for us long ago, but not many people got the memo. Go to your junk electronics drawer and look at your old flip phones or your dusty iPad 1. Look at the clothes you’ve recently pruned from your closet that are now headed to the Goodwill. You traded a lot of good dollars for those, not very long ago at all. Are they still making you happy today?

And:

…I try to get people to think of things in 10-year chunks at a minimum and then move on to a lifetime perspective. For example, spending $100 per week on restaurants equates to a $75,000 hit to your wealth every ten years, compared to keeping that money and just investing it in a conservative way.

If I understand him correctly, he recommends a very high savings rate and very early retirement.

From an individual point of view, my worry is that happiness may not go up much in this early retirement and in fact it may go down; people seem to enjoy working, which is good for their health and their social involvement.  Perhaps Mr. Money Moustache derives a sense of purpose from spreading this gospel, but most people would end up bored and indeed frustrated if they retired at age thirty as he has (apparently) done.

From a social point of view, if everyone did this, productivity would collapse.  Workers over the age of thirty make the world go round, and teach and pass down skills to others.  When you retire involves an external cost or benefit, and retirement can come either too early or too late.

I’ll note in passing that my “dusty iPad 1″ gave me an enormous amount of pleasure, as does my later iPad.  And I wish my old flip phone still worked!  Sadly, it is no longer still making me happy today.

Addendum: Ryan Decker comments.

The latest year-on-year data, from January, highlight the danger. The consumer price index dropped to 0.8%; the producer price index fell by 4.3%; exports contracted by 3.3%; imports were down by 19.9%; and growth of broad money (M2) slowed by 1.4%.

Moreover, the renminbi has come under downward pressure, owing partly to economic recovery in the United States, which has fueled capital outflows. Given huge declines in industrial profit growth (from 12.2% in 2013 to 3.3% last year) and in local-government revenues from land sales (which fell by 37% in 2014), there is considerable anxiety that today’s deflationary cycle could trigger corporate and local-government debt crises.

Just askin’…that is from Sheng and Xiao, there is more here.

That was quick…

by on February 28, 2015 at 10:26 am in Economics, Political Science | Permalink

Greece called into question on Saturday a major debt repayment it must make to the European Central Bank this summer, after acknowledging it faces problems in meeting its obligations to international creditors.

There is more here, most of all showing the Greeks have not obtained much leverage from the talks.  They are in a deep liquidity squeeze, even post “agreement.”  The Bundestag overwhelmingly approved last week’s “deal,” whereas the Greeks don’t even want to vote on it.  So who won that round?  The on-paper ability to be flexible with a primary surplus — that isn’t real any more — just isn’t worth very much right now.

The decline in on-the-job training

by on February 28, 2015 at 1:34 am in Data Source, Economics | Permalink

onthejob

That is from Timothy Taylor, who remains a model of excellence and lucidity.

Michael Pettis has an excellent short essay on this point, here is one (scary) excerpt:

A debt crisis must be resolved quickly because there is a self-reinforcing component within the process that can be extraordinarily harmful. High levels of sovereign debt create uncertainty about how the costs of resolving the debt will ultimately be assigned. This uncertainty causes growth to slow by adversely changing the behavior of a wide variety of stakeholders in the economy (as I will describe later). As the economy slows, contingent liabilities within the banking system rise, tax revenues decline and fiscal expenditures rise, all of which push up sovereign debt levels even further and increase both the cost of resolving the debt and the uncertainty about how the costs will be assigned. The consequence of this self-reinforcing deterioration in the sovereign balance sheet is, at first, a slow grinding away of the economy until the market reaches some point, after which the process accelerates and debt can spiral out of control.

Hat tip goes to the ever-excellent The Browser.

Price Ceilings

by on February 27, 2015 at 7:25 am in Economics, Education | Permalink

This week we released two new sections of our principles of economics class, price ceilings and trade. Most textbooks discuss how price ceilings create shortages and deadweight loss. Modern Principles delves much deeper to explain how price controls impede the operation of the price system creating economic discoordination and a misallocation of resources.

The introductory video is short but it covers a lot of economics.

Smile! The Dentists Lose a Monopoly

by on February 26, 2015 at 7:20 am in Economics, Law, Medicine | Permalink

Yesterday, the Supreme Court ruled (6:3) in North Carolina State Board of Dental Examiners v. FTC that the attempt of the state board of dental examiners to exclude nondentists from the practice of teeth whitening violated the Sherman antitrust act.

mouth1The opinion, written by Justice Kennedy, is especially lucid. Here, from Kennedy, are the key facts:

Starting in 2006, the Board issued at least 47 cease-and desist letters on its official letterhead to nondentist teeth whitening service providers and product manufacturers. Many of those letters directed the recipient to cease “all activity constituting the practice of dentistry”; warned that the unlicensed practice of dentistry is a crime; and strongly implied (or expressly stated) that teeth whitening constitutes “the practice of dentistry.” App. 13, 15. In early 2007, the Board persuaded the North Carolina Board of Cosmetic Art Examiners to warn cosmetologists against providing teeth whitening services. Later that year, the Board sent letters to mall operators, stating that kiosk teeth whiteners were violating the Dental Practice Act and advising that the malls consider expelling violators from their premises.

These actions had the intended result. Nondentists ceased offering teeth whitening services in North Carolina.

The FTC then brought suit, arguing that the action was anti-competitive. The case raises constitutional issues because the states are allowed to violate the federal antitrust acts, as will inevitably happen in the ordinary use of their powers. The question then became whether the NC State Dental Board was invested with enough state authority to overcome the antitrust provisions. On the one hand, the principles of federalism say leave the states alone. On the other (Kennedy quoting Justice Stevens in Hoover v. Ronwin):

“The risk that private regulation of market entry, prices, or output may be designed to confer monopoly profits on members of an industry at the expense of the consuming public has been the central concern of . . . our antitrust jurisprudence.”

In my view, the majority deftly navigated the tradeoff. The court said that North Carolina can, without question, decide that teeth whitening is the practice of dentistry but they have to do so more or less explicitly–they can’t simply put the fox in charge of the hen-house by deferring the decision to the dentists.

In other words, the court raised the cost of rent-seeking. If the dentists want to monopolize the practice of teeth whitening they will have to make that case to the legislature and not rely on the unilateral actions of a board composed almost entirely of dentists and created for entirely different purposes.

As Kennedy put it in language reminiscent of bootleggers and baptists:

Limits on state-action immunity are most essential when the State seeks to delegate its regulatory power to active market participants, for established ethical standards may blend with private anticompetitive motives in a way difficult even for market participants to discern. Dual allegiances are not always apparent to an actor. In consequence, active market participants cannot be allowed to regulate their own markets free from antitrust accountability.

Addendum: I, along with a number of other GMU scholars, was part of an Institute for Justice BRIEF OF AMICI CURIAE SCHOLARS OF PUBLIC CHOICE ECONOMICS IN SUPPORT OF RESPONDENT. Congratulations are due to the excellent team at IJ, as the brief seems to have been influential.

By the way, the dissenting opinion (Alito, Scalia, Thomas) appears to accept the logic of our brief to an even greater extent, so much so that they shrug their shoulders at the rent seeking as business as usual (I especially enjoyed the dig at the FTC as also being subject to regulatory capture). Thus, the dissenters focused entirely on the federalism question. I respect that approach but I think that as federalism stands today, the majority’s balancing approach is likely to lead to better policy.

Most days on MR we try to bring you something new, whether it be a report or an opinion of ours.  Even if it is not truly new, perhaps it is at least new relative to the discourse on most other web sites.  We are reluctant to recycle old posts, even though I am still thinking about whether a lot of food tastes better when you eat it with your fingers.

But maybe telling you something conventional can be new in a way too.  So here are a few totally conventional views which I hold, or still hold, but otherwise don’t bother reporting very often if at all:

1. Scott Walker and Jeb Bush are the most likely candidates to win the GOP nomination.

2. The GOP won’t try to repeal Obamacare, see #Syriza.

2b. Obamacare hasn’t made us healthier (yet?), but it has served as an inefficient form of wealth insurance for some lower-income groups.  On net, the negative health consequences of the disemployment effects of the law could easily counterbalance the direct positive health care access effects.  Imagine that, a health care reform that doesn’t even boost health.  Given their utility functions, many of the law’s backers should be happy with it, but they shouldn’t think I am impressed with their numerous “victory lap” blog posts.  Here is my 2009 post on what we should have done instead.  I still think that, noting that I remain happy with the cost control parts of what was done.

3. The Supreme Court will rule against the current version of Obamacare and send the matter back to Congress.  Confusion will result.

4. During the upward phase of the recovery, monetary policy just doesn’t matter that much.

5. We are still in the great stagnation, for the most part.  But with nominal gdp well, well above its pre-crash peak, it is not demand-based “secular stagnation.”  It just isn’t, I don’t know how else to put it.  And the liquidity trap is still irrelevant and has been since about 2009.

6. There is modest good news on the wage front, but so far it doesn’t amount to a fundamental shift in regime.  Following the monthly squiggles doesn’t tell us much.  And since wage trouble dates from 1999 and arguably earlier, I don’t attribute much of it to debt overhang from the recession.

7. Edward Snowden is both a hero and a traitor.

8. Syriza still has to try to make a Greek economy work with roughly the same means their predecessors had.  I don’t think they can do it, and I am sticking with my recent Grexit prediction, which by the way had an 18-month time horizon on it (see my earlier Twitter response to Felix Salmon).

9. No one knows what to do about ISIS or Putin.  The latter is a bigger danger than the former.  Confusion will result.

If you’re not excited, fine, that’s the point.  The predictable is a kind of news, too.  But hold on and come back, because tomorrow you might just hear more about remote-controlled, cyber cockroaches.

Ezekiel J. Emanuel writes:

The big problem is profitability. Unlike drugs for cholesterol or high blood pressure, or insulin for diabetes, which are taken every day for life, antibiotics tend to be given for a short time, a week or at most a few months. So profits have to be made on brief usage. Furthermore, any new antibiotics that might be developed to fight these drug-resistant bacteria are likely to be used very sparingly under highly controlled circumstances, to slow the development of resistant bacteria and extend their usefulness. This also limits the amount that can be sold.