Economics

On the proper interpretation of “The Great Stagnation”

by on May 19, 2013 at 1:58 pm in Books, Economics, History, Science | Permalink

Will Hutton writes:

At least Summers sees some underlying economic dynamism. For techno-pessimists such as economist Professor Tyler Cowen the future is even darker. It is not only that automation and robotisation are coming, but that there are no new worthwhile transformational technologies for them to automate. All the obvious human needs – to move, to have power, to communicate – have been solved through cars, planes, mobile phones and computers. According to Cowen, we have come to the end of the great “general purpose technologies” (technologies that transform an entire economy, such as the steam engine, electricity, the car and so on) that changed the world. There are no new transformative technologies to carry us forward, while the old activities are being robotised and automated. This is the “Great Stagnation”.

Such views make for a convenient target, but that is not close to what I wrote in The Great Stagnation.  For instance on p.83 you will find me proclaiming, after several pages of details, “For these reasons, I am optimistic about getting some future low-hanging fruit.”  Those are not Straussian passages hidden like the extra Nirvana audio track at the end of Nevermind.  The very subtitle of the book announces “How America…(Eventually) Will Feel Better Again.”

I also argue in the book that the internet is the next transformational technology, and that it is already here, though it needs some time to mature and pay off.  I devoted an entire separate book to this theme, namely The Age of the Infovore, which suggests that for autistics and other infovores massive progress already has arrived.

It is also odd that Hutton mentions robots and automation.  My next book considers those factors in great detail, but you won’t find either term or variants thereof in the index of The Great Stagnation.  Nor do I have the dual worry that both everything will be automated and there is nothing left to automate, as stated by Hutton.

The lesson perhaps is that if a book has a pessimistic-sounding title, mentions of optimism will go unheeded, even if they are in the subtitle.  Might that be an example of the fallacy of mood affiliation?

21 comments

Sentences to ponder

by on May 19, 2013 at 9:14 am in Data Source, Economics, Education, Music | Permalink

For jazz players, there is a negative relationship between earnings and having a BFA or a MFA.

The quotation is from here (pdf), the original source is Thomas M. Smith, pdf of the underlying paper here.  There are other interesting results in this paper as well.  Do note that if you don’t end up as a jazz player the degree still correlates with higher earnings.

19 comments

Bayonne business practice of the day

by on May 17, 2013 at 2:28 pm in Economics, Medicine, Uncategorized | Permalink

The most expensive hospital in America is not set amid the swaying palm trees of Beverly Hills or the luxury townhouses of New York’s Upper East Side.

It is in a faded blue-collar town 11 miles from Midtown Manhattan.

Based on the bills it submits to Medicare, the Bayonne Medical Center charged the highest amounts in the country for nearly one-quarter of the most common hospital treatments,  according to a New York Times analysis of 2011 data, the most recent available. No other hospital was at the top of the price list more often.

Bayonne Medical typically charged $99,689 for treating each case of chronic lung disease, five times as much as other hospitals and 17 times as much as Medicare paid in reimbursement. The hospital also charged on average of $120,040 to treat transient ischemia, a type of small stroke that has no lasting effect. That was six times the national average and 24 times what Medicare paid.

For those prices, the quality of care at Bayonne Medical is no better — or worse — than that at most other New Jersey hospitals.

The back story is this:

Bayonne Medical, which was founded in 1888, was losing nearly $1.5 million a month before it filed for bankruptcy in 2007. By 2011, under new ownership and a new financial model [sic], its patient revenue had nearly tripled and its operating income had reached $9.3 million, according to the American Hospital Directory, a publication that compiles data from Medicare and other sources about health care facilities.

Here is one commentary:

“Their model is to charge exorbitant rates, particularly for emergency room services, and if the insurance companies don’t pay them, they threaten to go after the member for the balance of billing,” said Carl King, head of national networks for Aetna, whose in-network contract was also ended by Bayonne in 2008.

You can read more here, interesting throughout.

41 comments

The Man of System

by on May 17, 2013 at 7:31 am in Economics, Education, Philosophy, Uncategorized | Permalink

One sometimes hears arguments for busing or against private schools that say we need to prevent the best kids from leaving in order to benefit their less advantaged peers. I find such arguments distasteful. People should not be treated as means. I must confess, therefore, that I took some pleasure at the findings of a recent paper by Carrell, Sacerdote, and West:

We take cohorts of entering freshmen at the United States Air Force Academy and assign half
to peer groups designed to maximize the academic performance of the lowest ability students.
Our assignment algorithm uses nonlinear peer eff ects estimates from the historical pre-treatment
data, in which students were randomly assigned to peer groups. We find a negative and signi ficant treatment eff ect for the students we intended to help. We provide evidence that within our
“optimally” designed peer groups, students avoided the peers with whom we intended them to
interact and instead formed more homogeneous sub-groups. These results illustrate how policies
that manipulate peer groups for a desired social outcome can be confounded by changes in the
endogenous patterns of social interactions within the group.

I was reminded of Adam Smith’s discussion of exactly this issue in The Theory of Moral Sentiments:

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.

Do note that this discussion is not a critique of the paper which is very well done.

108 comments

Does the eurozone have a monetary policy transmission mechanism? Or rather a liquidity leak?

by on May 17, 2013 at 2:03 am in Economics, Uncategorized | Permalink

What would happen if the ECB immediately and directly ran a helicopter drop of money to the periphery?  I don’t find that an easy question to answer.  Here is one recent report:

But the indicator [interest rate spreads] has since risen again and reached a record of 3.7 percentage points in January, indicating companies in southern Europe were paying significantly higher interest rates than northern rivals.

“Market segmentation remains, divergence in bank lending rates persists and, as a result, immediate growth prospects in the periphery are bleak,” said Huw Pill, European economist at Goldman Sachs, who was previously a senior monetary policy official at the ECB in Frankfurt.

Or read this update. Here is a more specific story about how small to mid-sized Italian banks are contracting.

Would the new helicopter drop money be kept in periphery banks and lent out to stimulate business investment?  Or does the new money flee say Portugal because Portuguese banks are not safe enough, Portuguese loans are not lucrative and safe enough, and Portuguese mattresses are too cumbersome?

The former scenario implies that monetary policy should be potent.  The latter scenario implies that the helicopter drop will be for naught and the fiscal policy multiplier also will be low, on the upside at the very least (fiscal cuts still might cause a lot of damage on the downside).  I call this the liquidity leak, rather than the liquidity trap.

So which scenario is it?

Does it matter who gets the helicopter drop?  Perhaps a granny gets the money first and sticks it in the local bank.  Alternatively, a financial manager in Lisbon would transfer that same euro rather seamlessly to his second account in Frankfurt.  Under this differential scenario, changes in the distribution of wealth also have nominal and eventually real effects.

Is the flow of marginal deposits the problem or the flow of marginal loans?  Or both?

Ryan Avent suggests allowing banks to swap their risky commercial loans for safer assets.  Other ideas propose running QE on packages of small to mid-sized loans or accepting those loans as collateral at the ECB.  Of course these assets are difficult to price and also moral hazard problems would loom.  If the ECB is not “overpaying” for the small loans, they won’t be encouraged.  If the ECB is overpaying, there are plenty of Sicilian businessmen who have friends at the local bank.  The mere lending isn’t enough, the projects also need to be good ones, because in these cases we are talking about tackling issues in the real economy.  Can a long-distance ECB collateral support operation spur good, growth-inducing projects?  It is easy to see why the Germans might be skeptical.

In some regards these problems will look like liquidity traps, because monetary policy will not always work.  But in the periphery lending rates are high (albeit with restricted credit), and standard liquidity trap models will not in general apply.  Again, I call it the liquidity leak.

Liquidity trap approaches will encourage you to think in terms of raising expectations of inflation (which is indeed the correct question in many settings), but here the geographic distribution of credit and economic activity is instead the crux of the matter.  Our current macroeconomic tools are not well-suited for integration with spatial economics, I am sorry to say.

Addendum: On some related issues, read Scott Sumner.

26 comments

Further results on hypergamy

by on May 16, 2013 at 4:47 pm in Economics, Education, Science, Uncategorized | Permalink

This paper, by Marianne Bertrand, Jessica Pan, and Emir Kamenica, was pointed out by Matt Yglesias on Twitter, the abstract is this:

We examine causes and consequences of relative income within households. We establish that gender identity – in particular, an aversion to the wife earning more than the husband – impacts marriage formation, the wife’s labor force participation, the wife’s income conditional on working, marriage satisfaction, likelihood of divorce, and the division of home production. The distribution of the share of household income earned by the wife exhibits a sharp cliff at 0.5, which suggests that a couple is less willing to match if her income exceeds his. Within marriage markets, when a randomly chosen woman becomes more likely to earn more than a randomly chosen man, marriage rates decline. Within couples, if the wife’s potential income (based on her demographics) is likely to exceed the husband’s, the wife is less likely to be in the labor force and earns less than her potential if she does work. Couples where the wife earns more than the husband are less satisfied with their marriage and are more likely to divorce. Finally, based on time use surveys, the gender gap in non-market work is larger if the wife earns more than the husband.

Their title is “Gender Identity and Relative Income within Households.”  There is a non-gated copy here.

95 comments

Have we seen self-defeating austerity in the United States?

by on May 16, 2013 at 6:12 am in Current Affairs, Economics, Uncategorized | Permalink

Everyone has been talking about the revised CBO deficit forecast, which suggests the short-term U.S. fiscal picture is more favorable than had been realized.  It can be said that in the short- to medium-term, the deficit is no longer an issue (in my view that was the case anyway, but that is a different story.)

But I am puzzled as to how the whole story is supposed to fit together, at least from an Old Keynesian perspective.

For instance, we have been told that the United States has been engaged in a good deal of fiscal austerity in the last few years.

We also were told that fiscal self-austerity was quite possibly self-defeating (or here, pdf) or at the very least fairly close to self-defeating.  That is, it would make budget balance harder rather than easier.

The amount of attention, and the fervor of the rhetoric, also suggest that this was seen as a major issue, not one minor to moderate factor with seven other significant confounding factors operating on top of it.  Admittedly this latter point is more of a subjective impression, but I believe many people have shared it.

OK, now here goes the potential story.  We did fiscal austerity, it was self-defeating, that was a major factor, and we ended up in…a better budget situation than we had been expecting?

It is fine to say “our budget situation could have been better yet,” but then the fiscal austerity story then seems to collapse into one factor among many confounding factors.  Which is fine by me, but it is not the story we seem to have been receiving.

I am myself comfortable arguing something like “when underlying fundamentals are sound, and/or there is monetary accommodation, an economy can withstand fiscal consolidation just fine.”  That is simply a more specific variant of the above.

Another “way out” is to question whether “austerity” is always to easy to measure, given the associated modalities and baselines involved in its current definitions, and given the multiple dimensions of fiscal policy, and so perhaps the degree of austerity has not been nearly as high as we were told.  I can buy that too, but still it would be news to the Old Keynesian accounts we have been reading.

So what’s up?

101 comments

Our improving short-term budget picture

by on May 15, 2013 at 1:44 pm in Current Affairs, Economics | Permalink

You will find summaries here from Annie Lowrey and also Ezra Klein.  I like Ross Douthat’s remarks:

…almost nobody is willing to break out the champagne on these estimates. The Keynesians think our shrinking deficit is a sign of the White House’s foolish surrender to austerity at a time when the economy still needs more government spending, not less, to achieve real lift-off. The deficit hawks think a dropping deficit will only encourage Washington’s fatal short-term thinking, by persuading policymakers to ignore the still-yawning gap between our long-term commitments and our revenues. Conservatives don’t like the extent to which we’re taxing our way to temporary fiscal stability (some of the unexpected deficit reduction reflected high-income tax filers paying extra for 2012 to avoid higher rates for 2013), while liberals have reason to fret that the White House’s “fiscal cliff” strategy squandered an important opportunity to raise upper-income taxes even more. And anyone who worries about the American political system’s ability to do structural reform can’t be that encouraged by the path we’ve taken to this point – the crude cuts to discretionary spending that leave entitlements untouched, the higher marginal tax rates rather than a rate-lowering, deduction-capping tax reform, and of course the general inability to compromise in the absence of artificial deadlines and self-created crises.

I don’t drink champagne but I’ll break out the dark chocolate instead.  One way to put it is that “yapping” — on all sides of the political spectrum — is overrated, most of all by the yappers themselves.

A slightly different take would be this.  Voters are getting more or less what they want, which is some spending restraint, mostly holding the line on taxes, not too much trust in government as a way of moving forward, and a love of entitlements.  One can find that objectionable, and indeed I do across a number of fronts, but there you go.  We are not going to elect a new people anytime soon, and in this odd sense you can see all the recent political gridlock as reasonably democratic, more so than its critics would like to admit (I know I’ll generate a bunch of criticisms citing poll data about how Americans really want this, that, or the other but I’ll hold my ground on this one).  Relative to the quality of the preference inputs, we are getting a better outcome than one might otherwise have expected.  After all, isn’t that what this country is really all about?  We may not have the world’s best farinata, but let’s raise a toast to America once again.

37 comments

The future is here

by on May 15, 2013 at 7:21 am in Economics, Education | Permalink

The Georgia Institute of Technology plans to offer a $7,000 online master’s degree to 10,000 new students over the next three years without hiring much more than a handful of new instructors.

Georgia Tech will work with AT&T and Udacity, the 15-month-old Silicon Valley-based company, to offer a new online master’s degree in computer science to students across the world at a sixth of the price of its current degree. The deal, announced Tuesday, is portrayed as a revolutionary attempt by a respected university, an education technology startup and a major corporate employer to drive down costs and expand higher education capacity.

Georgia Tech expects to hire only eight or so new instructors even as it takes its master’s program from 300 students to as many as 10,000 within three years, said Zvi Galil, the dean of computing at Georgia Tech.

…The deal started to come together eight months ago in a meeting between Galil and Udacity CEO Sebastian Thrun.

“Sebastian suggested to do a master’s degree for $1,000 and I immediately told him it’s not possible,” Galil said.

Eventually, the program came together for about $6,600 per degree. In a blog post, Thrun compared the day of the announcement to the day he proposed to his wife.

There is more here.  Hi future.

74 comments

Red Lights for Profit

by on May 14, 2013 at 1:13 pm in Economics, Law, Political Science | Permalink

TAMPA BAY, Florida — A subtle, but significant tweak to Florida’s rules regarding traffic signals has allowed local cities and counties to shorten yellow light intervals, resulting in millions of dollars in additional red light camera fines.

The 10 News Investigators discovered the Florida Department of Transportation (FDOT) quietly changed the state’s policy on yellow intervals in 2011, reducing the minimum below federal recommendations. The rule change was followed by engineers, both from FDOT and local municipalities, collaborating to shorten the length of yellow lights at key intersections, specifically those with red light cameras (RLCs).

…Red light cameras generated more than $100 million in revenue last year…with 52.5 percent of the revenue going to the state. The rest is divided by cities, counties, and the camera companies….”Red light cameras are a for-profit business between cities and camera companies and the state,” said James Walker, executive director of the nonprofit National Motorists Association. “The (FDOT rule-change) was done, I believe, deliberately in order that more tickets would be given with yellows set deliberately too short.”

See Buchanan and Brennan’s The Power to Tax for an analytic approach and Benson, Rasmussen and Sollars for another example of bureaucratic revenue maximization.

Hat tip: Radley Balko.

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Markets in everything, the culture that is Manhattan

by on May 14, 2013 at 11:21 am in Economics | Permalink

Some wealthy Manhattan moms have figured out a way to cut the long lines at Disney World — by hiring disabled people to pose as family members so they and their kids can jump to the front, The Post has learned.

The “black-market Disney guides” run $130 an hour, or $1,040 for an eight-hour day.

“My daughter waited one minute to get on ‘It’s a Small World’ — the other kids had to wait 2 1/2 hours,” crowed one mom, who hired a disabled guide through Dream Tours Florida.

“You can’t go to Disney without a tour concierge,’’ she sniffed. “This is how the 1 percent does Disney.”

That is by the way much cheaper than Disney’s own “VIP service,” which costs over $300 an hour.  Here is more, and I thank Neal and also Adam Cohen for the pointer.

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Attempted fish markets in everything, economies of scope edition

by on May 14, 2013 at 5:54 am in Economics, Science | Permalink

The headline is: “Desperately Seeking Cichlid: Fish Species Down to Last 3 Males, No Known Females.”

Once upon a time the Mangarahara cichlid (Ptychochromis insolitus) lived in a single habitat: a river in Madagascar from which the species gets its name. That river has now been dammed and the habitat has dried up. Today there are just three Mangarahara cichlids left—all males. Two reside at the Zoological Society of London’s (ZSL) London Zoo Aquarium; the third lives at the Berlin Zoo.

Although the species appears to be extinct in the wild, ZSL London Zoo hopes that somewhere, somehow a female or two might exist in private hands. “We are urgently appealing to anyone who owns or knows someone who may own these critically endangered fish, which are silver in color with an orange-tipped tail, so that we can start a breeding program here at the zoo to bring them back from the brink of extinction,” aquarium curator Brian Zimmerman said in a press release last week.

The zoo has already reached out to other facilities around the world, with no luck. Now the only hope lies in private aquarium owners, fish collectors and hobbyists who might see the zoo’s appeal and realize that they own a female cichlid. The zoo has even set up a dedicated e-mail address for anyone with information: fishappeal@zsl.org.

Of course you can’t count on the market alone, as there are cultural preconditions for cooperation:

…even if a female does turn up, breeding won’t be guaranteed. Zimmerman told the BBC News that the Berlin Zoo used to have a female that it had hoped to breed with its male. Instead, the male killed its potential mate. “It’s a fairly common thing with cichlids,” Zimmerman said.

We’ll see how the supply elasticity works out on this one…

For the pointer I thank Chris MacDonald.

18 comments

Save the World Bank’s *Doing Business* report

by on May 14, 2013 at 1:05 am in Data Source, Economics, Uncategorized | Permalink

Yesterday I received an email from Michael Klein:

We are writing to you about the World Bank’s Doing Business report.  Published since 2003 the report benchmarks 185 countries annually on key dimensions of the legal and regulatory environment for small businesses.  It has supported numerous reforms all over the world helping small businesses and employment.

There is currently a serious risk that the report may be abolished or severely curtailed as part of an ongoing review that will be finished in the next few weeks.  The report has always been subject to controversy as it highlights shortcomings that countries may not appreciate.  The World Bank’s President and its Board of Executive Directors will consider the future of the report in the next few months.

We would like to ask you to support an open letter to the World Bank’s President and its Executive Directors supporting the Doing Business project and recommending general directions for the future.  The letter (see below) is informed by our review of the arguments about Doing Business (attached).

This is our private initiative and without any institutional affiliation.

Please, reply by return email, if you agree to support the open letter. If you wish, indicate in which capacity you want to be mentioned.  If you want to forward this email to ask others also to support the letter, please, ask them to reply to this email address (helpdoingbusinessreport@gmail.com) so that we can keep an accurate record of support.

I support the report very much and I have found it useful in my own work.  It is one of the best things the World Bank does, and you can read more about the report here.  Please do email at the above address if you think your support can be useful.  Here is some back story on how China is seeking to push around the Bank on the ratings.  Here is FT coverage of the same.

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Private Schools in Developing Countries

by on May 13, 2013 at 7:04 am in Data Source, Economics, Education, Uncategorized | Permalink

Tina Rosenberg has an excellent piece on private schooling in developing countries at the NYTimes blog:

In the United States, private school is generally a privilege of the rich. But in poorer nations, particularly in Africa and South Asia, families of all social classes send their children to private school….

BRAC used to be an acronym for Bangladesh Rural Advancement Committee, but now the letters stand alone. It was founded in 1972 to provide relief after Bangladesh’s war of liberation. Although you’ve probably never heard of it, BRAC is the largest nongovernmental organization in the world, with some 100,000 employees, and it services reach 110 million people.

…And since 1985, it has run schools… BRAC has more than 1.25 million children in its schools in Bangladesh and six other countries, and it is expanding.

BRAC students, in fact, do better than their public-school counterparts….BRAC students are more likely to complete fifth grade — in 2004, 94 percent did, as opposed to 67 percent of public school students. (The BRAC number is now about 99 percent.)  On government tests, BRAC students do about 10 percent better than public school students  — impressive, given that their population is the most marginalized. (emphasis added).

In my own work on private schools in India I also found suggestive evidence that private schools–mostly very small, urban slum schools–produced better outcomes than their public counterparts (paper (pdf), video).

26 comments

Jeffrey Selingo’s *College Unbound*

by on May 13, 2013 at 6:20 am in Books, Economics, Education | Permalink

The subtitle is The Future of Higher Education and What It Means for Students, and I read it straight through in one sitting.  It is the best book on its topic, and anyone interested in this area should buy and read it immediately.

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