Economics

Contracting:

America, China, Hong Kong, Russia, Ukraine, Austria, Hungary, Poland, Slovakia, Turkey, Syria, Libya, Iraq, Yemen, Kosovo, Afghanistan, Philippines, Venezuela, Nigeria, South Africa, Malaysia, and Brazil, though the latter may be in flux.  Tunisia and Iran are problematic, but arguably hard to call.  Saudi may be headed toward collapse, but I don’t think you can say they are less free just yet.  Ethiopia is losing more political freedom, though still making very real economic progress.

Advancing:

Mexico and Colombia, if only by consolidating previous gains, and still there is a chance of a turnaround in Argentina at some point.  Latvia?  Where else?  You could make a (modest) case for India and some of the smaller African countries.

Neutral:

Japan, South Korea, Canada, and much of Western Europe though many of these cases appear fragile to me.

Overall this is not a thrilling ledger.  I haven’t listed most of the smaller countries, but in the longer run they often follow the lead of their larger neighbors.

File under Not Good.

…when scholars cluster on the left end of the spectrum, they marginalize themselves. We desperately need academics like sociologists and anthropologists influencing American public policy on issues like poverty, yet when they are in an outer-left orbit, their wisdom often goes untapped.

In contrast, economists remain influential. I wonder if that isn’t partly because there is a critical mass of Republican economists who battle the Democratic economists and thus tether the discipline to the American mainstream.

Here is more.

The South China Morning Post reports that iPhone maker Foxconn has replaced more than half of its workforce with robots since the launch of the iPhone 6. The figures were provided by the local government in Kunshan, where the company is based.

“The Foxconn factory has reduced its employee strength from 110,000 to 50,000, thanks to the introduction of robots. It has tasted success in reduction of labour costs,” said the department’s head Xu Yulian … 

Since September 2014, more than 500 companies in the Chinese province of Dongguan have spent a total of $630M on robot and AI technology to replace human workers. It was reported back in January that Foxconn had received a $12M government subsidy to help minimize layoffs in response to reduced iPhone orders.

Here is more, via Kurt Busboom.  And, via “anon from cl”, there is this from Adidas:

Adidas, the German maker of sportswear and equipment, has announced it will start marketing its first series of shoes manufactured by robots in Germany from 2017.

More than 20 years after Adidas ceased production activities in Germany and moved them to Asia, chief executive Herbert Hainer unveiled to the press the group’s new prototype “Speedfactory” in Ansbach, southern Germany.

The 4,600-square-metre plant is still being built but Adidas opened it to the press, pledging to automate shoe production – which is currently done mostly by hand in Asia – and enable the shoes to be made more quickly and closer to its sales outlets.

Here is my recent paper on premature deindustrialization.

If there truly is a savings glut, more immigration from lesser-skilled countries ought to do wonders.  Those laborers would soak up more of this capital investment as if they are a free lunch.  No domestic worker would have to end up with less capital invested, precisely because of the glut.  And by drawing down the “glutted” stock of savings through conversion into productive investment, the immigrants start to pull the economy out of a liquidity trap.  It seems also that the conversion of capital into immigrant wages should boost consumption, which at times has become the new (and wrong?) stand-in for aggregate demand.

I should stress that I do not find the “savings glut” terminology to be useful.  But if.  Do the advocates of the savings glut argument in fact draw this conclusion?  Isn’t this actually a good form of (indirect) fiscal policy?

Addendum: You’ll notice that if the savings glut is global, you do need lesser-skilled immigrants because they have to come from countries where less capital is invested per worker.  But if the savings glut is better understood as a regional or national phenomenon, immigrant labor from Sweden would do the trick too.

Representative Matt Cartwright (D-PA 17th District) has introduced the Organ Donor Clarification Act. The act would:

  • Clarify that certain reimbursements are not valuable consideration but are reimbursements for expenses a donor incurs
  • Allow government-run pilot programs to test the effect of providing non cash incentives to promote organ donation.  These pilot programs would have to pass ethical board scrutiny, be approved by HHS, distribute organs through the current merit based system, and last no longer than five years.

Importantly the legislation has been endorsed by the American Medical Association and a number of other groups including Fair Allocations in Research Foundation, Transplant Recipients International Organization and WaitList Zero.

See my piece on the organ shortage in Entrepreneurial Economics and previous MR posts for more.

Here is an excerpt from a longer post, which also includes a summary:

Here are some of the most interesting ideas in the book:

1. Mind speeds: I had not previously spent much time thinking about how our brain’s hardware affects the speed at which we think. As it happens, our minds are spectacularly slow compared to what’s feasible with other materials! Better hardware, as well inequalities of hardware across individuals, will likely drive many parts of em society.

2. Death in the time of copies: An individual’s relationship to death is much different when you can make and store copies of yourself. Given how much of our current lives and societies are wrapped in who dies / how they die / when we die – a world where death is less central has major implications for identity, values, and relationships.

3. Security concerns are paramount: Theft (making copies of you without your permission) thus becomes almost more of an issue than death. As such, laws and cultural taboos will shift with security becoming more central to em value systems.

4. Less democratic: In a short period of a time, a well run non-democratic regime can outperform your average democracy. However, in the modern human world, these regimes often implode on themselves before they can dominate the rest of the world. But in the em world, things will move so fast (economic doubling rates are incredibly fast, every month or two!), that the rewards to short bursts of effective non-democratic regimes may be very high.

5. Religion: I tend not to think of robots as religious, but Robin makes the case that the utility of religion (nicer hard-working people) and the values of the em world (more farmer like) should lead to increased religiosity.

6. Increased utility: The sheer number of ems, coupled with their high mind speeds – as well as the likelihood that there lives will be ok in terms of meaning and happiness – suggests that the transition to an em world will be a positive utility move.

You can order the book here.  Here is my earlier review.

Altruism toward others can inhibit cooperation by increasing the utility players expect to receive in a noncooperative equilibrium. To test this, we examine agricultural productivity in West African polygynous households. We find cooperation, as evidenced by more efficient production, is greater among co-wives than among husbands and wives. Using a game-theoretic model, we show that this outcome can arise because co-wives are less altruistic toward each other than toward their husbands. We present a variety of robustness checks, which suggest results are not driven by selection into polygyny, greater propensity for cooperation among women, or household heads enforcing others’ cooperative agreements.

That is a new paper by Akresh, Chen, and Moore, via the excellent Kevin Lewis.  Here are some ungated versions.

Changsha is the ugliest and most ungainly Chinese city I have seen, which is saying something.  Nonetheless for a food pilgrimage it is a serious rival for #1 spot in the world, perhaps surpassing Chengdu for the quality and novelty of its dishes.  Very little effort is required to do well, and some of my best courses I had at the Hunan restaurant in the Sheraton, also the only time I saw an English-language menu.

Even at major hotels, hardly anyone speaks passable English, much less good English.  But you can find many hanging portraits of Chairman Mao, who converted to communism in this city.

Carry an iPad, so you can look up and communicate the Chinese characters for “eggplant with orange chilies on top.”

There were plans to erect the world’s tallest building, and ground was broken, but the foundations were not extended and they have since been repurposed as a fish farm, hail Friedrich Hayek.

When they set their minds to it, they can build towers at the rate of three stories a day.

Changsha

The marginal value of entering a park here is high, as I stumbled upon card games, group exercise sessions, dance clubs, and performances of traditional music, all at higher rates than in most other Chinese cities I have visited.  At the entrance to one I read on the sign: “Don’t sneeze into the face of others,” and also I was ordered to reject “feudal superstitious practices.”

The people seem…different.  I feel the cab drivers often are on the verge of cackling, except when they are cackling.  Then the verge disappears.  The word “rollicking” frequently comes to mind, which of course is a sign you would not want to be governed by this province.

Kind of like New York.

Hogan’s lawsuit was not “frivolous”—at least, not in the mind of the judge, who allowed the suit to proceed over Gawker’s many appeals, nor in the minds of members of the jury, who were so disgusted by Gawker’s conduct that they ordered the mischievous media mavens to pay Hogan tens of millions of dollars more than he asked for. And it is not at all clear that Thiel and Hogan did anything to menace to press freedom: As the legal scholar Erwin Chemerinsky told the New York Times when the verdict came out: “I think this case establishes a very limited proposition: It is an invasion of privacy to make publicly available a tape of a person having sex without that person’s consent.”

It’s also not clear what policy response Gawker’s outraged defenders would recommend. Put caps on the amount of money people can contribute to legal efforts they sympathize with? That would put the ACLU and any number of advocacy groups out of business. It would also represent a far greater threat to free expression than a court-imposed legal liability for the non-consensual publication of what is essentially revenge porn. If Marshall and others are worried about the superrich harassing critics with genuinely frivolous lawsuits—as, yes, authoritarian characters like Donald Trump have attempted to do—they would have more success backing tort reform measures to limit litigiousness overall than attacking Thiel for contributing to a legitimate cause he has good reason to support.

Here is more.  Here are Thiel’s own words (NYT), here is one bit:

“It’s less about revenge and more about specific deterrence,” he said in his first interview since his identity was revealed. “I saw Gawker pioneer a unique and incredibly damaging way of getting attention by bullying people even when there was no connection with the public interest.”

Mr. Thiel said that Gawker published articles that were “very painful and paralyzing for people who were targeted.” He said, “I thought it was worth fighting back.”

Mr. Thiel added: “I can defend myself. Most of the people they attack are not people in my category. They usually attack less prominent, far less wealthy people that simply can’t defend themselves. He said that “even someone like Terry Bollea who is a millionaire and famous and a successful person didn’t quite have the resources to do this alone.”

Incentives in Action

by on May 25, 2016 at 1:30 pm in Economics | Permalink

A nice example of incentives in action from Jason Furman speaking at the World Bank (based on a good GAO report):

tobacco

 

Prior to the [2009] law’s enactment, the tax rates on roll-your-own tobacco and pipe tobacco were the same. After the law’s enactment, the tax rate on roll-your-own tobacco was over $20 per pound higher than the tax on pipe tobacco. And, as you can see in the figure below, sales of roll-your-own tobacco plummeted after the law and sales of pipe tobacco increased by a factor of ten.

Hat tip: Justin Wolfers.

Plug those numbers into the formula, and the prediction is that the Democratic share of the two-party presidential vote in 2016 will be 44.99%.

That is from Timothy Taylor, here is an earlier piece by Jeff Sommer.

Donald Trump may get the nuclear suitcase, a cranky “park bench” socialist took Hillary Clinton to the wire, many countries are becoming less free, and the neo-Nazi party came very close to assuming power in Austria.  I could list more such events.

Haven’t you, like I, wondered what is up?  What the hell is going on?

I don’t know, but let me tell you my (highly uncertain) default hypothesis.  I don’t see decisive evidence for it, but it is a kind of “first blast” attempt to fit the basic facts while remaining within the realm of reason.

The contemporary world is not very well built for a large chunk of males.  The nature of current service jobs, coddled class time and homework-intensive schooling, a feminized culture allergic to most forms of violence, post-feminist gender relations, and egalitarian semi-cosmopolitanism just don’t sit well with many…what shall I call them?  Brutes?

Quite simply, there are many people who don’t like it when the world becomes nicer.  They do less well with nice.  And they respond by in turn behaving less nicely, if only in their voting behavior and perhaps their internet harassment as well.

Female median wages have been rising pretty consistently, but the male median wage, at least as measured, was higher back in 1969 than it is today (admittedly the deflator probably is off, but even that such a measure is possible speaks volumes).  A lot of men did better psychologically and maybe also economically in a world where America had a greater number of tough manufacturing jobs.  They thrived under brutish conditions, including a military draft to crack some of their heads into line.

To borrow a phrasing from Peter Thiel, perhaps men did better in the age of “technological progress without globalization” rather than “globalization without technological progress,” as has been the case as of late.

Here’s a line from Martin Wolf:

Princeton professors Anne Case and Angus Deaton note, in addition, a sharp relative deterioration in mortality and morbidity among middle-aged white American men, due to suicide, and drug and alcohol abuse.

(Addendum: note this correction.)

For American men ages 18-34, more of them live with their parents than with romantic partners.

Trump’s support is overwhelming male, his modes are extremely male, no one talks about the “Bernie sisters,” and male voters also supported the Austrian neo-Nazi party by a clear majority.  Aren’t (some) men the basic problem here?  And if you think, as I do, that the incidence of rape is fairly high, perhaps this shouldn’t surprise you.

The sad news is that making the world nicer yet won’t necessarily solve this problem.  It might even make it worse.

Again, we don’t know this is true.  But it does help explain that men seem to be leading this “populist” charge, and that these bizarre reactions are occurring across a number of countries, not just one or two.  It also avoids the weaknesses of purely economic explanations, because right now the labor market in America just isn’t that terrible.  Nor did the bad economic times of the late 1970s occasion a similar counter-reaction.

One response would be to double down on feminizing the men, as arguably some of the Nordic countries have done.  But America may be too big and diverse for that really to stick.  Another option would be to bring back some of the older, more masculine world in a relatively harmless manner, the proverbial sop to Cerberus.  But how to do that?  That world went away for some good reasons.

If this is indeed the problem, our culture is remarkably ill-suited to talking about it.  It is hard for us to admit that “all good things” can be bad for anyone, including brutes.  It is hard to talk about what we might have to do to accommodate brutes, and that more niceness isn’t always a cure.  And it is hard to admit that history might not be so progressive after all.

What percentage of men are brutes anyway?  Let’s hope we don’t find out.

For women, most of it, at least according to Wong and Penner:

This study uses data from the National Longitudinal Study of Adolescent to Adult Health (Add Health) to (1) replicate research that documents a positive association between physical attractiveness and income; (2) examine whether the returns to attractiveness differ for women and men; and 3) explore the role that grooming plays in the attractiveness-income relationship. We find that attractive individuals earn roughly 20 percent more than people of average attractiveness, but this gap is reduced when controlling for grooming, suggesting that the beauty premium can be actively cultivated. Further, while both conventional wisdom and previous research suggest the importance of attractiveness might vary by gender, we find no gender differences in the attractiveness gradient. However, we do find that grooming accounts for the entire attractiveness premium for women, and only half of the premium for men.

Those results are consistent with my intuition, and here is some Ana Swanson discussion of the results.  That is via Samir Varma, and here is Allison Schrager on whether female scientists should try to look frumpy.

So say Hummel, Pfaff, and Rost, in a recent paper:

In view of the numerous accounting and corporate scandals associated with various forms of moral misconduct and the recent financial crisis, economics and business programs are often accused of actively contributing to the amoral decision making of their graduates. It is argued that theories and ideas taught at universities engender moral misbehavior among some managers, as these theories mainly focus on the primacy of profit-maximization and typically neglect the ethical and moral dimensions of decision making. To investigate this criticism, two overlapping effects must be disentangled: the self-selection effect and the treatment effect. Drawing on the concept of moral judgment competence, we empirically examine this question with a sample of 1773 bachelor’s and 501 master’s students. Our results reveal that there is neither a self-selection nor a treatment effect for economics and business studies. Moreover, our results indicate that—regardless of the course of studies—university education in general does not seem to foster students’ moral development.

For the pointer, I thank a lost, forgotten soldier in my Twitter feed.

Unsafe Cars Can Save Lives

by on May 23, 2016 at 7:15 am in Economics | Permalink

Jalopnik: If seeing that a vehicle has a zero-star safety rating isn’t enough to frighten a person out of his or her mind, seeing said vehicle in a wreck probably is. Five cars designed for India—which has minimal safety requirements for vehicles—just received that number in crash testing…

The tests come from the London-based Global New Car Assessment Program…The group tested seven cars made for the Indian market and handed five of them—the Renault Kwid, Maruti Suzuki Celerio, Maruti Suzuki Eeco, Mahindra Scorpio, and Hyundai Eon, all with no airbags—a rating of zero out of five stars for adult safety…

David Ward, secretary general of Global NCAP told the Wall Street Journal:

Global NCAP strongly believes that no manufacturer anywhere in the world should be developing new models that are so clearly sub-standard,” he said. “Car makers must ensure that their new models pass the UN’s minimum crash test regulations, and support use of an airbag.

family_on_motorcycle_indiaLet’s take a closer look. These cars are very inexpensive. A Renault Kwid, for example, can be had for under $4000. In the Indian market these cars are competing against motorcycles. Only 6 percent of Indian households own a car but 47% own a motorcycle. Overall, there are more than five times as many motorcycles as cars in India.

Motorcycles are also much more dangerous than cars.

The [U.S] federal government estimates that per mile traveled in 2013, the number of deaths on motorcycles was over 26 times the number in cars.

Similar ratios are found in the UK and Australia. I can think of several reasons why the ratio might be lower in India–lower speeds, for example, but also several reasons why the ratio might be higher (see picture above).

The GNCAP worries that some Indian cars don’t have airbags but forgets that no Indian motorcycles have airbags. Even a zero-star car is much safer than a motorcycle. Air bags cost about $200-$400 (somewhat older estimates here a, b, c) and are not terribly effective. (Levitt and Porter, for example, calculated that air bags saved 550 lives in 1997 compared to 15,000 lives saved by seatbelts.) At $250, airbags would increase the cost of a $5,000 car by 5%. A higher price for automobiles would reduce the number of relatively safe automobiles and increase the number of relatively dangerous motorcycles and thus an air bag requirement could result in more traffic fatalities.

A broader point is that in India today $250 is about 5% of GDP per capita ($5,700 at PPP) and that’s a high price to pay for the limited protection provided by an air bag. Lots of people in the United States wouldn’t pay $2750–5% of US GDP per capita–for an air bag. Why should Indians be any different? (Mannering and Whinston estimated U.S. willingness to pay was about $500 in the 1990s). As incomes in India rise more people will demand cars and they will demand better and safer cars but forcing people to buy an option before they are willing to pay for it is unlikely to make people better off.

Safety is relative so cars judged unsafe by global standards could save lives in India. The bigger lesson is that it’s always dangerous to impose global standards without taking into account the differing circumstances of time and place.