Economics

Claims about oil

by on November 29, 2014 at 2:04 am in Economics | Permalink

“All told, roughly 2.6 million barrels a day of world crude oil production comes from projects with a breakeven price in excess of $80 a barrel,” the report said. World oil production was 93.2 million barrels a day in the third quarter.

You will note, of course, that because of fixed costs and option value, a currently unprofitable project can remain up and running for a long time to come.  (As explained in the Cowen and Tabarrok Principles text.)  Here is a related point:

At the same time, analysts have also noted that for many shale producers, a large chunk of production costs — acquiring acreage, contracting wells, etc. — have already been spent. As a result, the more important figure might be “half-cycle” production costs. which analysts at Citi last week pegged at between $37 to $45 a barrel.

From William Watts, there is more here, including a discussion of which forms of fossil fuel energy are profitable at $80 a barrel.

Sergei Guriev, a former ­adviser to Prime Minister Dmitry Medvedev and a former board member of Russia’s largest state bank, said: “If nothing changes, if sanctions aren’t removed and the price of oil does not go up, then in two years the Russian government will have a major problem — it will lack cash and it will not be able to borrow it.”

The luxury goods market may contract up to eighteen percent this year in Russia.  There is more here, via www.macrodigest.com.

In Matt Dillon’s case, he would often look in the wrong direction. I would tell him that on the screen he would be looking in the right direction, even though it felt wrong when he was shooting it. Trying to explain this to a 14-year-old kid who was already suspicious about the whole thing wasn’t easy. So I’d put a $20 bill on my forehead, and I’d say, “Matt, if you look at this $20 bill, it’s yours when the shot is finished.” Over the course of the movie he made about $200.

There is more (too much more) here, and for the pointer I thank Hugo Lindgren.

The economics of Uber

by on November 28, 2014 at 7:16 am in Data Source, Economics, Travel | Permalink

We were talking about this at lunch the other day, and now Josh Barro steps forward with the numbers:

The average price of an individual New York City taxi medallion fell to $872,000 in October, down 17 percent from a peak reached in the spring of 2013, according to an analysis of sales data. Previous figures published by the city’s Taxi and Limousine Commission — showing flat prices — appear to have been incorrect, and the commission removed them from its website after an inquiry from The New York Times.

In other big cities, medallion prices are also falling, often in conjunction with a sharp decline in sales volume. In Chicago, prices are down 17 percent. In Boston, they’re down at least 20 percent, though it’s hard to establish an exact market price because there have been only five trades since July. In Philadelphia, the taxi authority recently scrapped a planned medallion auction.

There is more here.  I learn also that Nevada just banned Uber.

Is this information about the work week good news or bad news?

But in reality, France’s 35-hour week has become largely symbolic, as employees across the country pull longer hours and work more intensely, with productivity per hour about 13 percent higher than the eurozone average. And a welter of loopholes lets many French employers outmaneuver the law.

All told, French workers put in an average of 39.5 hours a week, just under the eurozone average of 40.9 hours a week, according to the Organization for Economic Cooperation and Development.

That is from Liz Alderman.

“Ghost cities” lined with empty apartment blocks, abandoned highways and mothballed steel mills sprawl across China’s landscape – the outcome of government stimulus measures and hyperactive construction that have generated $6.8tn in wasted investment since 2009, according to a report by government researchers.

In 2009 and 2013 alone, “ineffective investment” came to nearly half the total invested in the Chinese economy in those years, according to research by Xu Ce of the National Development and Reform Commission, the state planning agency, and Wang Yuan from the Academy of Macroeconomic Research, a former arm of the NDRC.

…The bulk of wasted investment went directly into industries such as steel and automobile production that received the most support from the government following the 2008 global crisis, according to the report.

Mr Xu and Ms Wang said ultra-loose monetary policy, little or no oversight over government investment plans and distorted incentive structures for officials were largely to blame for the waste.

Don’t forget this part:

Misallocation of capital and poor investment decisions are not the only explanation for the enormous waste in China’s economy. A significant portion of China’s post-crisis stimulus binge was simply stolen by Communist Party officials with direct responsibility for boosting growth through investment, according to separate estimates by Chinese and overseas economists.

There is more here, from the excellent Jamil Anderlini.  As Arnold Kling would say, 祝你今天愉快…

Addendum: Here is a criticism of how that estimate was made.

Keynes is slowly losing (winning?)

by on November 27, 2014 at 12:48 am in Economics, Uncategorized | Permalink

Paul Krugman has an interesting blog post arguing that Keynes is slowly winning.  But, I must admit, I find it dismaying how little of the contrary evidence is considered.  Let’s say you set out to write a blog post about Keynes losing, what might you cite?:

1. Keynesians predicted disaster following the American fiscal sequester, and the pace of the recovery accelerated.

2. Even Obama and the Democrats are writing down, and seeing through, budgets with declining levels of discretionary spending.

3. The UK saw a rapid recovery, and the BOE kept nominal gdp growing at a good pace, even in the presence of a so-called “liquidity trap.”  This is not mainly due to the UK having “stopped tightening,” nor did the Continental economies which let up on austerity see similar recoveries.  Nor had the Keynesians predicted that letting up on tightening would bring such a strong recovery, Summers for instance had predicted exactly the opposite.

4. Rate of change recoveries in the Baltics — which really did try a kind of radical austerity — have been stronger and more rapid than Keynesians were predicting, even if absolute levels remain less than ideal.

5. France doesn’t seem to have much interest in trying additional government spending, even though their economy is flailing and no other attempted remedies have been successful.

6. Ireland finally is seeing a rapid recovery, albeit one with highly uneven distributional consequences and possibly another real estate bubble.  The “get the pain over with” approach is looking better right now than it did say two years ago.

7. It is the ECB which seems to hold all of the levers in the eurozone, and the Japanese central bank which is making the (possibly failed) splash in Abenomics.  That may be anti-anti-Keynesian, but it’s not exactly Keynesian either.

8 The Chinese have moved to discount rate cuts, and they seem to realize that more fiscal spending will only postpone their day of reckoning in terms of excess capacity.  That’s not an “anti-Keynesian” attitude, given the current features of their economy, but it’s not exactly screaming the relevance of Keynes’s GT either.

9. It looks like Germany actually will support some additional infrastructure spending.  You could call that a Keynesian victory, but more likely it also will be used to shut down further debate.  Here is one estimate of what will be done.  It’s not that much.

10. Japan is in a (supposed) liquidity trap, but negative real shocks have not in fact helped their economy, contra to the predictions of that model (start with here and here).  Nor does anyone think that the bad weather in the first quarter of U.S. 2014 was good for us, although a basic liquidity trap model implies it will boost inflation (beneficially) because the supply restrictions lead to price hikes which tax currency holdings and thus boost AD.  Come on, people, that is weak.

11. A lot of the cited predictions of the Keynesian or liquidity trap model are in fact simple predictions of efficient markets theory (such as on interest rates), predictions of market monetarism or credit-based macro theories (low inflation), or regularities that have held for decades (budget deficits not raising real interest rates).  It’s just not that convincing to keep on claiming these predictions as victories for Keynesianism and in fact I (among many others) predicted them all too.  I never thought I was much of a sage for getting those variables right.

12. Whether we like it or not, large chunks of Asia still seem to regard Keynesian economics with contempt.  They prefer to stress supply-side factors.

13. At the Nobel level, Mortensen, Pissarides, and Fama do not exactly count as Keynesian material, admittedly Shiller is on the other end of the scale, though even there I am not aware he has a strong record of speaking out on behalf of activist fiscal policy.

14. It is now widely acknowledged that there has been a productivity problem in recent times (or maybe longer), and thus those measurements of “the output gap” are looking smaller all the time.  Again (a common pattern in these points), nothing there implies “Keynes is wrong,” but it does make Keynes less relevant.

15. Where Keynesian views have looked very good is that government spending cuts do — these days — bring steeper and rougher gdp tumbles than was the case in the 1990s.  That is very important, but a) it is increasingly obvious that there is catch-up for countries with OK institutions, and b) correctly or not, the world really hasn’t been convinced there is major upside to expanding fiscal policy.

The point is not that these citations give you a fully balanced view — they don’t!  And it would be wrong to conclude that Keynes was anything other than a great, brilliant economist.  Rather these citations, plus many of Krugman’s points, give you some beginnings for this issue.  It’s not nearly “Keynes’s time” as much as many people are telling us, after all his biggest book is from 1936 and that is a long time ago.  Keynes is both winning and losing at the same time, like many other people too, fancy that.

…of those in middle-skill occupations who remain in a full-time job, about 83 percent are still working in a middle-skill job one year later. … What types of jobs are the other 17 percent getting? Mostly high-skill jobs; and that transition rate has been rising. The percent going from a middle-skill job to a high-skill job is close to 13 percent: up about 1 percent relative to before the recession. The percent transitioning into low-skill positions is lower: about 3.4 percent, up about 0.3 percentage point compared to before the recession. This transition to a high-skill occupation tends to translate to an average wage increase of about 27 percent (compared to those who stayed in middle-skill jobs). In contrast, those who transition into lower-skill occupations earned an average of around 24 percent less.

That is Ellie Terry and John Robertson via Mark Thoma.

If you are going to ask “when will China clean up its air?”, you might wish to look at South Korea, a country with a broadly similar industrial profile, although of course Korea is much further along in terms of economic development.

As of 2002, South Korea was ranked 120th of 122 countries for air quality by the World Economic Forum.  And at that time South Korea was pretty much a fully developed nation, economically speaking that is.  South Korea was also already a democracy, and we know from Casey Mulligan (with Gil and Sala-i-Martin) that democracies tend to have cleaner air than autocracies, ceteris paribus.

Might we consider the possibility that China won’t clean up its air anytime soon?  The good news, however, is that once Korea started its environmental clean-up, improvements came pretty rapidly.  More recently, they come in at #43 on a more general index of environmental quality.

That fact is from Dong-Young Kim, The Challenges of Consensus Building in a Consolidating Democracy.

We are running a contest for MRU, and the goal is to figure out how economists ought to be put on cereal boxes.  Imagine that a famous economist would in fact be represented by a cereal and a cereal box.  For example there would be:

Thomas Piketty, Special K

Another possibility would be tweaking the cereal name slightly, so you would get:

Hyman Minsky, Captain Liquidity Crunch

Or:

John Bates Clark, Marginal Product 19

You could try:

Eugene Fama, Lucky Charms, though perhaps that is too subtle for some.

The winner of the contest gets…his or her suggestion actually realized.  Please enter your suggestions, and vote on the suggestions of others, here.  Or if you don’t want to enter the contest per se, there is always the MR comments section…

The economics of rape

by on November 25, 2014 at 2:53 am in Economics, Law, Uncategorized | Permalink

There are some interesting and under-reported papers on this topic, here is one of them, by Jordan D. Matsudaira and Emily Greene Owens, here is the abstract:

In 2006, approximately 49% of violent crimes were not reported to police. Being the victim of sexual assault is expensive; each incident imposes an external cost of over $100k on the victim. However, recent estimates of the total social cost are an order of magnitude larger suggesting that from a social welfare standpoint rape is likely to be underreported if the victim’s demand for reporting is price elastic. In spite of the centrality of victim reporting in the functioning of the criminal justice system, to date there is very little systematic evidence on what governments can do to encourage victims to report crimes. We estimate the sensitivity of victims to the cost of reporting in an Alaskan city between 1993 and 2006, during which time a chief of police publicly supported a policy of charging victims of sexual assault for medical procedures required to collect evidence against their attackers. Using a triple differences approach that compares trends in reported sexual assaults to other index crimes over time and across Alaskan cities, we estimate that this shift in cost of approximately $1,200 from the city government to victims reduced the number of reported rapes by between 50 and 80%. This large response highlights the importance of public policies which reduce the private cost of reporting crime.

The full paper is here.  Here is a paper by Paul Zimmerman and Bruce Benson on the economics of alcohol and rape, the published version is here.  Here is W. David Allen on the under-reporting of rape.  Here is a paper on rape as an economic crime.  This Scott Cunningham paper covers the connection between prostitution and rape.  This study shows that porn does not seem to lead to rape.  That said, if you enter “economics rape” into scholar.google.com, many of the top entries are about the crop.  My Google searches for “political economy of rape” do not turn up much useful, although that ought to be a very important topic.

Session 16M, Economics and Chess

Papers:

“Thinking Outside the Game Tree: Game Preparation at Chess World Championship”
Doru Cojoc, Columbia University

“Do Rational Agents Make Rational Decisions? Evidence from Chess Data”
Alexander Matros, University of South Carolina
Irina Murtazashvili, Drexel University

“Human and Computer Preference Divergences at Chess”
Kenneth Regan, University at Buffalo
Tamal Tanu Biswas, University at Buffalo
Jason Zhou, SUNYIT

The link to the program is here.  Here is Cojoc’s earlier paper on mixed strategies in chess.

Carlsen played an imperfect match, by the way, especially in the second half, but won on the grounds of age and stamina.  For the next cycle, I see Grischuk as the most likely challenger, as Aronian tends to choke at key moments and Caruana does not yet have a good enough positional understanding of the middle game and end game.  Carlsen will hold the title still for some while to come.

The pointer is from Daniel Klein, here is his earlier paper on why don’t government officials seem like villains (pdf).

While cruising the internet I ran into this recent working paper (pdf) by Daniel Benjamin, James J. Choi, and Geoffrey Fisher:

We randomly vary religious identity salience in laboratory subjects to test how identity effects contribute to the impact of religion on economic behavior. We find that religious identity salience causes Protestants to increase contributions to public goods. Catholics decrease contributions to public goods, expect others to contribute less to public goods, and become less risk averse. Jews more strongly reciprocate as an employee in a bilateral labor market gift-exchange game. Atheists and agnostics become less risk averse. We find no evidence of religious identity-salience effects on disutility of work effort, discount rates, or generosity in a dictator game.

In the recent hullaballoo, it has been forgotten that perhaps the best paper on whether religion is good for you was written by Jonathan Gruber.

Best non-fiction books of 2014

by on November 24, 2014 at 1:34 am in Books, Economics, History | Permalink

First there are the economics books, including books by people I know, including Piketty, The Second Machine Age, Tim Harford’s wonderful macro explainer, Megan McArdle’s The Up Side of Down, Lane Kenworthy on social democracy, The Fourth Revolution by John Micklethwait and Adrian Woolridge, Daniel Drezner The System Worked, and Frank Buckley on why the Canadian system of government is better.  And Russ Roberts, How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness.  We’ve already talked, written, and thought about those plenty, and they are not what this list is about, so I will set them aside.  Most of you are looking for excellent new books in addition to these, books you might not have heard about.

Here are the other non-fiction books of the year which took my fancy, mostly in the order I read them, noting that the link usually leads you to my previous review or comments:

Jürgen Osterhammel, The Transformation of the World: A Global History of the Nineteenth Century.  Long, exhausting, and wonderful.

Christopher Hale, Massacre in Malaya, a broader history than it at first sounds, fascinating from beginning to end.

Howard Eiland and Michael W. Jennings, Walter Benjamin: A Critical Life.

The Very Revd John Drury, Music at Midnight: The Life and Poetry of George Herbert.

John Keay, Midnight’s Descendants: A History of South Asia since Partition.  An excellent treatment of how much work remains to be done in the “nation building” enterprise in South Asia.

Alice Goffman, On the Run: Fugutive Life in an American City.  A sociology graduate student hangs out with lawbreakers and learns about police oppression, an excellent micro-study.  My column on her book is here.

Gendun Chopel, Grains of Gold: Tales of a Cosmopolitan Traveler, Tibetan scholar goes to India and records his impressions, unusual.

George Prochnik, The Impossible Exile: Stefan Zweig at the End of His World.  I loved this one.

I’ve only read the first half of the new Tom Holland translation of Herdotus’s Histories (I will get to the rest), but surely it deserves note.

Evan Osnos, Age of Ambition: Chasing Fortune, Truth, and Faith in the New China.  This book won the National Book Award for non-fiction.

David Eimer, The Emperor Far Away: Travels at the Edge of China.  A look at China’s outermost regions and their ethnic minorities.  Just imagine that, we had two excellent popular China books in the same year.

The Falling Sky: Words of a Yanomami Shaman, by Davi Kopenawa.  Repetitious in parts, sometimes incoherent too, but it offers a smart and unique perspective you won’t get from any of the other books on this list or any other.

Jonathan Rottenberg, The Depths: The Evolutionary Origins of the Depression Epidemic.  This treatment stresses the (partial) cognitive advantages of having a tendency toward depression.

Edward Hirsch, A Poet’s Glossary, assorted facts and insights about the English language, you don’t have to feel like reading a book about poetry to find this worthwhile.

David Sterling, Yucatán: Recipes from a Culinary Expedition, huge, expensive, wonderful, more than just a cookbook though it is that too.  I’ve spent some of the last few weeks learning these recipes and what makes them tick.

Walter Isaacson, The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution.  A good overview of how some of the main pieces of today’s information technology world fell into place, starting with the invention of the computer and running up through the end of the 1990s.

Arthur M. Melzer, Philosophy Between the Lines: The Lost History of Esoteric Writing.

Andrew Roberts, Napoleon: A Life.

Jan Swafford, Beethoven: Anguish and Triumph.  As good or better than the classic biographies of the composer.

Stephen Kotkin, Stalin, vol. 1.  This one I have only read a part of (maybe 150 pp.?), it is very long and does not fit my current reading interests, but it seems very good and impressive and also has received strong reviews.  So I feel I should include it.

Hal Whitehead and Luke Rendell, The Cultural Lives of Whales and Dolphins.

So who wins?  If I had to pick a #1, it would be The Very Revd John Drury, Music at Midnight: The Life and Poetry of George Herbert, not the kind of book I would be expecting to coronate, which is a testament to the magnetic force it has exercised over my imagination.

Then I would pick Alice Goffman, On the Run: Fugutive Life in an American City and David Sterling, Yucatán: Recipes from a Culinary Expedition as the runners-up.

My fiction picks were here.  There are still some wonderful books to come out this year, and already-published books I will still read, especially after mining other “best of” lists, so around Dec.31 or so I’ll post an updated account of what I would add to this list.

THREE times in the last 35 years, Russian military forces have crossed international borders – in Afghanistan in 1979, Georgia in 2008 and the Crimea earlier this year. As Simon Derrick, the currency strategist at BNY Mellon points out, each occasion coincided with a peak in the oil price. And each incursion was followed by a very sharp fall in the price of crude (see chart).

…If the previous episodes are any guide, oil has a fair way to fall.

That is from Buttonwood at The Economist, file under “speculative”…