Economics

To see the problem, consider Brian’s situation. He’s a single adult, age 45, earning $35,000 a year. BCRA (section 102(b)(2)) expects Brian to contribute a little more than 8.3% of that income to purchase a health insurance policy. That’s about $2,911. The federal government would chip in the amount needed to let Brian buy a “median benchmark” policy in his region. That policy won’t be lavish: on average it will pay for 58% of covered expenses, but it might well let Brian avoid bankruptcy if he gets extremely sick. It will also get Brian low, pre-negotiated rates for a lot of medical treatment instead of being subject to astronomical “Chargemaster” prices that hospitals often charge the uninsured. So, if that Bronze policy costs $4,500, Brian would pay $2,911 and the federal government would pay $1,089.

Suppose Brian succeeds at work and gets a $5,000 raise; or suppose Brian gets a part time job to help supplement his income and earns $5,000 more. Now, because his income is $40,000, section 102(b)(2) of BCRA expects Brian to contribute 11.3% of his income to healthcare. Since that’s $4,558, Brian in fact pays for the whole $4,500 policy; the federal government pays nothing. So, although Brian’s raise is $5,000, he pays an extra $1,589 in premiums. His effective marginal tax is almost 32% just from the BCRA alone. When one combines his loss of a subsidy with increased income taxes of $1,488 and an increased payroll tax of $382.50 (double that if Brian’s new job is deemed self-employment), Brian’s gets to keep at most $1,541 of his new $5,000. His effective marginal tax rate is at least 69%. It’s probably even higher if Brian faces state income tax or suffers a phase out of other government income-based benefits.

That is from Seth Chandler.  Ross Douthat has a good bottom-line take on the bill.

That is a new paper by Jonathan Berk and Jules H. van Binsbergen, here is the abstract:

We study a market for a skill that is in short supply and high demand, where the presence of charlatans (professionals who sell a service that they do not deliver on) is an equilibrium outcome. We use this model to evaluate the belief that reducing the number of charlatans through regulation increases consumer surplus. We show that this belief is false: both information disclosure as well as setting standards reduces consumer surplus. Although both standards and disclosure drive charlatans out of the market, consumers are worse off because of the resulting reduction in competition amongst producers. Producers, on the other hand, strictly benefit from the regulation, implying that the regulation we observe in these markets likely derives from producer interests. The model provides insights into the parameters that drive the cross-sectional variation in charlatans across professions. Professions with weak trade groups, skills in larger supply, shorter training periods and less informative signals regarding the professional’s skill, are more likely to feature charlatans. We conclude that the number of charlatans in equilibrium is positively related to the value added of that profession to consumers.

How does financial advising fit into this schema?  Economic consulting?  Blogging?

For the pointer I thank the excellent Kevin Lewis.

The author is James Broughel and the subtitle is Applying Economic Theory to Public Policy.  I am biased, as James was my doctoral student and this is an adaptation of his thesis, but I think this is a great work and also well-written and fun to read.  It’s the single best piece written on how to think about how regulation impacts economic growth — in particular once-and-for-all effects vs. growth rate changes — and that is one of the most neglected economic policy questions today.

As organized, multiplayer video game competitions — also known as esports, or electronic sports — continue to gain recognition in China, entertainment giant Tencent Holdings Ltd. has accelerated its esports expansion with the unveiling of a new five-year plan.

The plan, which involves setting up esports leagues, tournaments and associations, nurturing players and constructing esports-themed industrial parks, was published by Tencent E-Sports, a subsidiary established in early December.

Tencent is the world’s largest mobile gaming company by revenue, according to research firm Newzoo. With the new plan, it aims to create a 100-billion-yuan esports industry in China within five years, the company announced on Friday at a press conference.

The plan was based on Tencent’s expectations that China is set to become the world’s largest esports market. Tencent predicted there will be 220 million esports players in China and 335 million globally by the end of this year.

Here is the story.  And:

The number of Chinese “red tourists” who visit Russia to retrace a shared communist history has been soaring in recent years, contributing to the wave of Chinese visitors to Russia that has grown with the help of closer bilateral relations between the countries, according to industry insiders on Tuesday.

“There definitely is growing interest among Chinese tourists for Russia, especially the older generations, who are nostalgic about the history of Russia,” Zeng Qingan, general manager of Beijing Global Travel Ltd, told the Global Times.

Zeng said that since his company started tour groups to Russia nine years ago, the number of participants has increased fast, especially after the company redesigned its tour routes in 2014 to cover historical Soviet Union era sites, including the Red Square and Victory Square in Moscow, the Lenin Memorial Museum in Ulyanovsk and Moscow State University. The travel firm called it the “Red Tourism” package.

Link here.  The revolution not only will be televised, but they will make an e-sports version of it, marketed on WeChat.

Grading Modi

by on June 22, 2017 at 3:18 pm in Economics | Permalink

There have been a number of articles recently reviewing economic reform under India’s Prime Minister Narendra Modi. The best is this excellent report from the Economist:

FEW countries would see a tax requiring some businesses to file over 1,000 returns a year as an improvement. But India might. A nationwide Goods and Services Tax (GST) is set to come into force on July 1st. It will replace such a tangle of national and local levies and duties that even the prospect of 37 annual filings (three a month plus an annual return) for each of India’s 29 states in which a business operates is a relief by comparison.

By replacing domestic tariffs, the new tax should rid India of checkposts at internal borders, where lorries carrying goods typically languish for hours. Less red tape, however, comes with complications. Most countries with a value-added tax settle on a single rate for many goods and services. India has opted for six, ranging from zero to 28%. Officialdom decrees, for example, that shampoo, wallpaper and fizzy water are luxuries to be taxed at 28%; eyeliner, curry paste and plain water will attract an 18% levy. Restaurants will pay 12%, unless they are small (5%) or air-conditioned (18%).

Hopes that liberalising reforms would breathe new life into India’s economy have permeated the air since Narendra Modi swept to power as prime minister in May 2014. But the GST is perhaps the most obvious example of an opportunity wasted. Economists think a simple GST, which would have ensured businesses focus on goods and services that consumers want rather than those favoured by the tax code, might have added two percentage points to GDP growth. The complicated version will probably yield less than half that and only after a painful transition.

Read the whole thing.

C. inquires:

Why do we live in the golden age of economic history? Was there something identifiable that caused the subfield to grow in esteem? Some new technology that changed the costs of research (not that I can see)? Something else?

Mark Koyama should write a Medium essay on this, but in the meantime here are my thoughts:

1. We now know much, much more about the earlier economic histories of China, India, and some other locales.  The rise of more and better graduate students from the emerging economies, or for that matter from Europe, has been essential here.

2. Some of the turn toward economic history came with the financial crisis, and the search for longer-term parallels, which meant looking back in history, most of all to the Great Depression.

3. Although the advance of cliometrics started a long time ago, we are now finally at intergenerational margins where economic historians are as quantitatively well-equipped as most parts of the applied micro spectrum.

4. The stranger the time period, the more people will have to look to broader stretches of history for understanding.  Yes, this one is an uh-oh.

5. Some applied micro fields have become a little more boring, so that has helped a partial shift of status to economic history.  Public data sets have been exhausted, and a lot of economic history data sets are “weird or idiosyncratic” data sets, which now are “in” and I predict will stay “in” for a long while to come because they offer the possibilities of both new discoveries and moats.

6. An academic trend that hasn’t yet been exploited usually ends up exploited, sooner or later, once the right nudge comes along.

5b, 6b. In chess, the top players are opting for the Giuoco Piano once again.

7. Competing economic models are more “allowed” in the subfield — not everything must be neoclassical — which has opened economic historians to more wide-ranging questions.  Economic history remains a good place to pursue the questions about economics that initially interested many people as undergraduates.

8. Academic attention is more media-driven these days, and good economic history papers usually have a story of some kind, and perhaps also a historical personage, event, or institution of broader interest.

Mr Costa explained that long-duration bonds are the best way for real money investors to place bets on Argentina, given that they are unable to leverage themselves like a more nimble hedge fund. “If you are an investor with a constructive view on Argentina, what you want is duration,” he said.

Argentina sold $2.75bn of the debt with a coupon of 7.125 per cent, equating to an annual yield of 7.9 per cent, according to a statement from the Argentine finance ministry late on Monday. The bond attracted $9.75bn in orders from investors.

But don’t focus on the 100 years:

Given the bond was sold at a yield of almost 8 per cent an investor would recoup their initial investment in around 12 years.

Yields could fall by at least 150 basis points, moving more in line with other major economies in the region such as Brazil — implying capital gains on such bonds in the double digits. “Those are pretty good returns. At a rate of 8 per cent or higher, it’s a buy,” Mr Costa said.

The bad news is what you must endure to have a crack at the 8 percent:

Argentina has defaulted on its sovereign debt eight times since independence in 1816, spectacularly so in 2001 on $100bn of bonds — at the time the world’s largest default — and most recently in 2014 after clashing with Elliott Management, an aggressive hedge fund.

But Mr Macri’s government “cured” the latest default in 2016, and times have changed, said Joe Harper, a partner at Explorador Capital Management, an investment fund focused on Latin America. “The policy pendulum in Argentina has shifted to the centre, and the country’s next 100 years will be very different than the last century.”

Here is the full FT story, by Benedict Mander and Robin Wigglesworth.

The Return of the Jitney

by on June 20, 2017 at 7:27 am in Economics, Travel | Permalink

Lyft’s new service, Lyft Shuttle, works on a fixed route for a fixed fee during commute hours. Salon mocks this as a “glorified city bus with fewer poor people.” In fact, Lyft Shuttle and Uber Pool, which is moving in a similar direction, are an improved form of jitney. Jitneys were very popular in the early history of the automobile because they were cheaper, safer and more flexible than public transit but the transit companies lobbied to have them made illegal or burdened with heavy costs.

In many less developed economies, however, jitneys remain a popular form of transit. In New York City, jitneys never quite went away but have continued to operate, mostly illegally, under the name jitneys or shared taxis or dollar vans. Moreover, contrary to Salon, the jitney has always been a form of transit appreciated by the poor. Here’s wikipedia on New York City’s dollar vans:

Dollar vans are typically modified passenger van, and often operate in urban neighborhoods that are under-served by public mass transit or taxis. Some of the dollar vans are licensed and regulated, while others operate illegally. Passengers may board them at designated stops along their route or hail them as share taxis….Dollar vans are often owned and used by members of inner-city communities, such as African/Caribbean American, Latino, and Asian-American populations.

The transit companies did have a legitimate beef with the jitneys. The jitneys would often free-ride on the market making of the transit companies by swooping in just before a bus’s scheduled arrival. Without passengers the transit company wasn’t profitable but without a transit company to ease coordination the jitneys weren’t as profitable or as efficient as they might be–jitneys were subject to what Al Roth calls market unraveling which led in turn to market thinness.

Klein, Moore and Reja came up with a clever solution to the unraveling problem, curb rights (see also my book Entrepreneurial Economics). Curb rights are rights to pickup passengers allocated by curb location and hour.

Will the new form of jitneys be subject to unraveling? Will curb rights be necessary? Probably not. Lyft has moved the location of coordination from the unowned streets to owned cyberspace. Thus the privatization of coordination has solved a market thinning problem that has plagued jitneys for over a hundred years.

Public transit still has useful features, especially the economies of scale available with subways. Economies of scale also make subways, as of yet, a natural monopoly for which regulation may be useful. It’s difficult to see, however, what market failure exists in the market for road transit. We might want to subsidize people but there’s little reason to subsidize buses or other forms of road transit.

Efficient markets?

by on June 19, 2017 at 9:25 pm in Economics | Permalink

From Morgan Housel on twitter.

What’s bad for [the now trade-restricted] K-pop is excellent for Chinese musicians, who are seizing on the opportunity. One group skyrocketing in popularity in the absence of K-pop “idols” is SNH48, a Shanghai-based girl band that has a rotating cast of members—somewhere around 220, depending how you count the generations—and just raised more than $150 million from investors last month. If the idea of girl-band investors seems odd, you should know that SNH48, whose performers are voted in and out by fans, is far more of a corporate business than a music group. Per the Financial Times (paywall):

“Unlike western pop, which trades on authenticity and the idea of performers singing from the heart, SNH48 is run more like a tech start-up than a musical group. Taking its inspiration from Japanese group AKB48, instead of a core group it runs on teams of interchangeable singers—a strategy managers hope will allow it to build generations of young female stars and longer-lasting revenue streams.”

Fans use a mobile app to track their favorite singers, send notes to them, and watch their livestreams. The band’s managers carefully curate new teams of performers every year, which is similar to how South Korea’s massive K-pop factory is run.

Here is the full story, by Amy X. Wang, via George Chen.

Ben Thompson writes:

…you can see the outline of similar efforts in logistics: Amazon is building out a delivery network with itself as the first-and-best customer; in the long run it seems obvious said logistics services will be exposed as a platform.

This, though, is what was missing from Amazon’s grocery efforts: there was no first-and-best customer. Absent that, and given all the limitations of groceries, AmazonFresh was doomed to be eternally sub-scale.

WHOLE FOODS: CUSTOMER, NOT RETAILER

This is the key to understanding the purchase of Whole Foods: to the outside it may seem that Amazon is buying a retailer. The truth, though, is that Amazon is buying a customer — the first-and-best customer that will instantly bring its grocery efforts to scale.

Today, all of the logistics that go into a Whole Foods store are for the purpose of stocking physical shelves: the entire operation is integrated. What I expect Amazon to do over the next few years is transform the Whole Foods supply chain into a service architecture based on primitives: meat, fruit, vegetables, baked goods, non-perishables (Whole Foods’ outsized reliance on store brands is something that I’m sure was very attractive to Amazon). What will make this massive investment worth it, though, is that there will be a guaranteed customer: Whole Foods Markets.

…At its core Amazon is a services provider enabled — and protected — by scale.

Here is the full piece, with many more background and points.

Here is his long post, here is the opening entry:

Development

Pranab Bardhan, The Economic Theory of Agrarian Institutions. There was a time when development took theory seriously, and this book came out of that time. This book is a bit uneven (it’s an edited volume), but the introductory chapter by Joseph Stiglitz is probably the single, most important statement peasants in developing countries as rational human beings. In short: Whenever you find yourself thinking that some behavior you observe in a developing country is stupid, think again. People behave the way they do because they are rational. and If you think they are stupid, it’s because you have failed to recognize a fundamental feature of their economic environment.

In addition to its intrinsic interest, this post is a good meta-reflection of what actually influences the thinking of economists, or not.

India, Modernity, and the Great Divergence: Mysore and Gujarat (17th to 19th C.) is exactly what the title promises.  This 700 pp. or so book by Kaveh Yazdani, teaching in South Africa, is not published within the traditional network of outlets.  Yet from my perusal of the first 100 pp. or so it seemed quite promising, plus it has excellent endorsements, for instance:

“Yazdani has made a great addition to scholarship on the Great Divergence. His analysis of military, economic, technical, and political advances in Mysore and Gujarat – two of the most commercially advanced areas of 17th and 18th century India – sheds new light on the nature and complexity of the differences between contemporary Indian and European states. No analysis of the Great Divergence will be credible without taking Yazdani’s research, and Indian developments, into account.”
– Jack A. Goldstone, Hazel Professor of Public Policy, George Mason University, Fairfax

Recommended, to some of you, let’s hope it gets a broader circulation.  We do indeed live in a golden age for economic history.

Via Marc Canal Noguer:

Taking My Talents to South Beach (and Back)

Shoag, Daniel, and Stan Veuger. “Taking My Talents to South Beach (and Back).” HKS Faculty Research Working Paper Series RWP17-019, May 2017.

Abstract

We study the local economic spillovers generated by LeBron James’ presence on a team in the National Basketball Association. Mr. James, the first overall pick of the 2003 NBA draft, spent the first seven seasons of his career at the Cleveland Cavaliers, and then moved to the Miami Heat in 2010, only to return to Cleveland in 2014. Long considered one of the NBA’s superstars, he has received the league’s MVP award four times, won three NBA championships, and been a part of two victorious US teams at the Olympics. We trace the impact a star of Mr. James’ caliber can have on economic activity by analyzing the impact his departures and arrivals had on business activity close to the Cleveland Cavaliers and Miami Heat stadiums. We find that Mr. James has a statistically and economically significant positive effect on both the number of restaurants and other eating and drinking establishments near the stadium where he is based, and on aggregate employment at those establishments. Specifically, his presence increases the number of such establishments within one mile of the stadium by about 13%, and employment by about 23.5%. These effects are very local, in that they decay rapidly as one moves farther from the stadium.

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CHJ Automotive have not released official images yet of the car, but showed CNBC some of the initial designs of the ultra-compact vehicle. The car is 2.5 meters long and 1 meter wide. It runs on two batteries which are swappable, meaning that the car won’t need to stop for too long at a charging station to re-juice. Google’s in-car operating system called Android Auto is equipped in the vehicle

It will be priced at between 7,000 euros ($7,824) and 8,000 euros.

While it may seem like a small vehicle, Shen explained the target market the company is after in China.

“In China, there are 340 million people (who) daily commute with e-scooters, but there is a strong demand for them to upgrade to something,” Shen told CNBC in a TV interview on Friday.

“But we cannot imagine all of them driving cars, so we want to give them something else, which is an ultra-compact car.”

The product might be used for ride-sharing in Europe as well.  Here is the article, forgive the noisy music at the link, via Ray Kwong.