Economics

Since the Greek situation is heating up again, and not in good ways, I thought I would link to a recent interview I did.  Here is one bit:

Asked about what has gone wrong with Greece’s bailouts, Professor Cowen commented that “the bailout programs were never going to work in the first place. The debt is too high and is more of a political weapon than anything which can be paid back. And the Greek economy requires very serious structural reform, more than the Greek people seem to wish to accept. That is two impossibilities in the situation right there, and then on top of that we have a dysfunctional EU, slow global growth across the board, and the refugee crisis. In that setting, can one expect anything other than failure?”
And:

“It’s all a big bargaining game, and at the end of the day pulling the plug will have to be up to the Greeks. Everyone’s expectations are unrealistic, and everyone knows that, including the IMF and EU and many others too. But who will pull the plug? Tsipras almost did, and then backed away. In my view, sooner or later Greece will leave this arrangement because it simply isn’t workable. I don’t look forward to the resulting economic carnage.”

Asked why he thinks Europe has been unwilling to consider a debt-write off for Greece, Cowen said that “because Italy above all would be next in line, but of course Spain too and others as well.”

Here is the conclusion:

Lastly, when I asked Tyler Cowen what policies he would recommend for Greece so the country can re-boost its economy and put people back to work, [he] said this:

“Do you know the old punchline? “Well, I wouldn’t start from here.” Greece has been deindustrializing for a long time, there isn’t enough to take the place of manufacturing, and tourism just isn’t enough. The interest groups seem intractable. I’d like to see Greece have much more of a free market economy, but that’s begging the question, isn’t it? And there is the ongoing distraction and stress of having to renegotiate the agreements every few years. By the way, I can’t bench press 600 pounds.”

The full interview is here.

What drives you?

by on April 28, 2016 at 2:26 am in Economics, Philosophy | Permalink

In fact, over the years, Mr. Gross has consistently asked one question of prospective employees: What drives you?

The twist is that they must pick one of three answers: money, power or fame.

Strangely to him, no one has ever picked fame.

“It is the one thing I have always wanted,” he said. “When I was starting out at Pimco in 1972, I told my mother and father that I was going to become the most famous bond manager in the world.”

And this:

At night he will wake up as many as three times to check on global markets, he says.

And this:

“My whole evening is dependent on whether I beat them [Pimco, his former employer],” Mr. Gross said. “You see, I have to prove it all over again. Every day.”

The Landon Thomas Jr. NYT Dealbook post is interesting throughout.  And here is a 2008 profile of Gross.

Paul Frijters and Benno Torgler have a new six-page paper (pdf)on that topic, here is the abstract:

The current peer review system suffers from two key problems: promotion of an in-crowd whose methods, opinions and innovations it protects; and failure to represent the opinions and interests of non-peer clients. As a result, whole disciplines orient themselves toward navel-gazing research questions of little import to society or even science as a whole, and new methods and concepts must be unusually persuasive to break through. We thus suggest a more efficient and integrity-preserving system based on an open two-sided market in which buyers and sellers of peer review services would both be subject to a set of recursive quality indicators. We lay out key features we think would be important to reduce the opportunities for gaming and that improve the signals about the societal value of a contribution. Our suggestions include a level of reward offered by the author of a paper to get refereed and a level of desired quality of the referee. They include randomly selecting from a group of referees that express a willingness to accept the offered contract. They include the possibility that papers are put up by non-authors for peer-review for assessment on different criteria, such as societal relevance. And they finally include the possibility that referee reports themselves become refereed by other referees. What we envisage is that such an open market in which all elements are subject to peer review will over time lead to specialized reviewers in different criteria, and more useful signals about the nature and quality of any individual piece of work. Our incentivized market set-up would both professionalize the peer review process and make it completely transparent, an innovation long overdue.

Interesting, but the main problem with the idea is simply that no one cares.

For the pointer I thank Ben Southwood.

The BBC has an interesting report on ambulance services in Beijing.  Up until now, ambulance drivers could decide themselves how much to charge people for their services.  I’m assuming these weren’t listed or known beforehand either.  This seems ripe for abuse given that the patient will be desperately wanting to get to the hospital and in no state for bargaining.  According to the article, most Chinese on social media didn’t even know that ambulances charge at all.  That must come as a big shock then when they get hit up by the driver.

So what did authorities decide to do?  Decree that ambulances “be fitted with taxi-style meters in an effort to allay public concerns about overcharging.”  Hmm, this doesn’t seem to be the most incentive compatible policy either.  As one social media cynic (read: realist) pointed out, “Don’t rule out ambulances taking a detour when using the meter.”  At least when you’re in the backseat of a cab, you can watch where the driver is going.  In the back of an ambulance in an emergency situation, that’s not going to be very feasible!  Don’t get me wrong, I’m in no way advocating free ambulance services, but there has to be a better policy than this.

That is from Cherokee Gothic.

Lemonade sentences to ponder

by on April 27, 2016 at 1:46 pm in Economics, Music | Permalink

For those of you who just returned from a trip to Mt. Everest, Lemonade is Beyoncé’s latest album, and the lyrics are all about the pain she felt when her husband, music mogul Jay-Z, cheated on her. Or so it’s universally assumed..

..as many people have pointed out, Lemonade is available for streaming only on Tidal, which is Jay-Z’s company. So that means Beyoncé is helping Jay make a lot of money off his alleged infidelity—and shoring up his faltering streaming service at the same time.

That is from Kevin Drum.  What would Ronald Coase say?

Ten weeks after BoJ governor Haruhiko Kuroda startled both financial markets and parliamentarians with Nirp, the yen has appreciated by some 8 per cent against the dollar. The stock market has rebounded sharply this month, however the Topix bank index remains 11 per cent lower since the advent of Nirp.

Under such a policy, risk assets were supposed to rise, but instead demand for Japanese government bonds rallied, rewarding the risk averse. Meanwhile, even finance ministry officials concede that the deflationary mindset is more entrenched than ever. There is agreement that Nirp has backfired and such an unsustainable monetary policy cannot support growth, let alone help financial asset prices.

That is from Henny Sender at the FT.

The bloating of television?

by on April 26, 2016 at 1:47 pm in Economics, Television | Permalink

HBO’s music-industry drama, “Vinyl,” began with a two-hour pilot, directed by Martin Scorsese, that vamped on like the coda to “Freebird.” The series premiere of FX’s drama “Fargo” ran around 97 minutes with ads. “Fargo,” the Coen brothers movie it was based on, ran 98. Episodes of Netflix’s romantic comedy “Love” ambled up to 40 minutes.

As a critic, I’m used to championing greater options for artists. We’re lucky to live in a time when TV creators have freedom from arbitrary constraints. But more and more of my TV watching these days involves starting an episode, looking at the number of minutes on the playback bar and silently cursing.

…Today’s great fattening, like so many trends in TV now, is in part the influence of streaming TV. The only thing limiting the length of a Netflix or Amazon binge show is your ability to sit without cramping. The menu is bigger, and so are the portions.

Every now and then, there is something to be said for appealing to the least common denominator!

That is from James Poniewozik at the NYT.

Police versus Prisons

by on April 26, 2016 at 7:31 am in Economics, Law | Permalink

Here’s a remarkable graph from the Council of Economic Advisers report on incarceration and the criminal justice system. The graph shows that the United States employs many more prison guards per-capita than does the rest of the world. Given our prison population that isn’t surprising. What is surprising is that on a per-capita basis we employ 35% fewer police than the world average.* That’s crazy.

polce v prison

Our focus on prisons over police may be crazy but it is consistent with what I called Gary Becker’s Greatest Mistake, the idea that an optimal punishment system combines a low probability of being punished with a harsh punishment if caught. That theory runs counter to what I have called the good parenting theory of punishment in which optimal punishments are quick, clear, and consistent and because of that, need not be harsh.

We need to change what it means to be “tough on crime.” Instead of longer sentences let’s make “tough on crime” mean increasing the probability of capture for those who commit crimes.

Increasing the number of police on the street, for example, would increase capture rates and deter crime and by doing so it would also reduce the prison population. Indeed, in a survey of crime and policing that Jon Klick and I wrote in 2010 we found that a cost-benefit analysis would justify doubling the number of police on the street. We based our calculation not only on our own research from Washington DC but also on the research of many other economists which together provide a remarkably consistent estimate that a 10% increase in policing would reduce crime by 3 to 5%. Using our estimates, as well as those of some more recent papers, the Council of Economic Advisers also estimates big benefits (somewhat larger than ours) from an increase in policing. Moreover, what the CEA makes clear is that a dollar spent on policing is more effective at reducing crime than a dollar spent on imprisoning.

Unfortunately, selling the public on more policing is likely to be difficult. Some of the communities most in need of more police are also communities with some of the worst policing problems. We aren’t likely to get more policing until people are convinced that we have better policing. Moreover, people are right to be skeptical because the type of policing that works is not simply boots on the ground. As the CEA report notes:

Model policing tactics are marked by trust, transparency, and collaborations between police and community stakeholders…

Better policing and more policing complement one another. Greater trust can come with body cameras as well as community oversight and other efforts to bring transparency and accountability. Most importantly, the drug war has eroded trust between police and community and that has led to an endogenous equilibrium in which some communities are rife with both drugs and crime. Fortunately, marijuana decriminalization and legalization have begun to move resources away from the war on drugs. Legalization in states like Colorado does not appear to have increased crime and has likely contributed to a dramatic decline of violence in Mexico. As we move resources away from drug crime, police will have more resources to raise the punishment rate for those traditional crimes like murder, robbery and rape that communities everywhere do want punished.

Addendum: See also Peter Orszag’s column on this issue.
* Corrected: Earlier I said spending rather than employment.

Nonetheless it is worth reading.  From Tim Redmond, here is one bit:

…let’s remember: San Francisco is already by far the densest city West of the Mississippi, and third in the entire country…

And another:

Seriously: If you take the city’s own studies, which show that every 100 units of market-rate housing create a demand for 30 units of low-income housing (because new rich residents want people to serve them coffee and fine wines and clean their clothes and their toilets and provide security etc., and those new jobs mean new people who need places to live), then any high-end housing that isn’t 30 percent affordable is making the crisis worse. Got that? When you are in a hole, stop digging. If you’re in a crisis, don’t make it worse. And right now, building luxury housing is a net loser for the city.

The same goes for Muni. It costs the city far more to serve new housing than the new housing pays. Which means every time the rest of us pay higher fares for Muni, we are in effect subsidizing market-rate housing developers.

And yet another:

Please: Show me any evidence, any credible evidence at all, that allowing the private market to build, baby, build in San Francisco today (without demolishing hundreds of thousands of rent-controlled units and creating a city like Manhattan or Hong Kong without the social housing, that none of us want to live in) will actually bring down rents and allow the middle class to stay, and I will listen. But as far as I can tell, that evidence doesn’t exist.

In contrast I would stress that we need to count the welfare of the in-migrants.  But I nonetheless hope that market urbanism can do a better job outlining how cheaper housing might be expected to come to San Francisco, and with which complementary regulations if any.

On the limits of restrictive housing policy in San Francisco, this NYT story is also worth reading:

The Chamber of Commerce and the tourist board are calling for harsher measures to improve what is euphemistically called the “condition of the streets,” a term that encompasses the intractable homeless problem, public intravenous drug use, the large population of mentally ill people on the streets and aggressive panhandling. The chamber recently released the results of an opinion poll that showed that homelessness and “street behavior” were the primary concerns of residents here.

It’s funny but also sad how many people attacked me when I predicted this in my book Average is Over:

Visitors come to bask in the Mediterranean climate, stroll through the charming streets and marvel at the sweeping views of the bay and the Pacific. But alongside those views are tent encampments on sidewalks and rag-covered homeless people in front of some of the most expensive real estate in America.

Property crime is up more than sixty percent since 2010.

I say they eventually get cleared out, but to where?  Here is my previous post on market urbanism and whether it is overrated.

James Crabtree directs our attention to this symbol at Nanyang Technological University:

Nanyang

That is in fact the motto of their School of International Studies.  Right now the Singaporean improbable is deflation for seventeen consecutive months, let’s hope for better news on that front.

It offers many interesting facts and angles (pdf here).  Here is one instructive paragraph of note:

Relative to other factors, rising prison admission rates have been the most important contributor to the increase in incarceration. Raphael and Stoll (2013b) decompose the growth in the prison population into changes in crime rates, prison admissions and time served. If criminal justice policies remained the same as they were in 1984, State imprisonment rates would have actually 20 declined by 7 percent by 2004, given falling crime rates. Instead, State prison rates increased by over 125 percent. After accounting for falling crime rates, over two-thirds of this increase was attributable to rising prison admission rates, and 14 percent to increases in time served. In Federal prisons, longer sentences and rising admissions rates have been equally important, each accounting for approximately 20 percent of the growth in the Federal prison rate that is not due to changes in crime…

That is from pp.19-20.  Here is a related post from last year.

Balázs Bodó has a 2015 paper, “Libraries in the post-scarcity era,” here is the abstract:

In the digital era where, thanks to the ubiquity of electronic copies, the book is no longer a scarce resource, libraries find themselves in an extremely competitive environment. Several different actors are now in a position to provide low cost access to knowledge. One of these competitors are shadow libraries – piratical text collections which have now amassed electronic copies of millions of copyrighted works and provide access to them usually free of charge to anyone around the globe. While such shadow libraries are far from being universal, they are able to offer certain services better, to more people and under more favorable terms than most public or research libraries. This contribution offers insights into the development and the inner workings of one of the biggest scientific shadow libraries on the internet in order to understand what kind of library people create for themselves if they have the means and if they don’t have to abide by the legal, bureaucratic and economic constraints that libraries usually face. I argue that one of the many possible futures of the library is hidden in the shadows, and those who think of the future of libraries can learn a lot from book pirates of the 21st century about how users and readers expect texts in electronic form to be stored, organized and circulated.

Much of the paper focuses on what we learn from the competitive, digital, “guerrilla” libraries of Russia — most of all Aleph — with respect to what users really want; this is a striking and original piece.

For the pointer I thank Michael Rosenwald.

SolidOpinion leaves the bulk of the comments section to operate as it always has, but it adds three slots at the top for “promoted comments,” which can be auctioned off to the highest bidder. Publishers have the option of using SolidOpinion’s software to moderate all their comments. The startup’s service is free to use, but it takes a cut of all cash transactions.

…Last year, Tablet magazine, a New York-based Jewish publication, started charging people to post any comment on its website. Readers can pay $2 a day, $18 a month, or $180 a year. Alana Newhouse, the magazine’s editor-in-chief, said she was sick of anonymous commenters haranguing her writers but wanted to leave an option for people willing to prove their good intentions by making what amounts to a donation.

The result has been far fewer comments, but Newhouse doesn’t mind.

Here is the Joshua Brustein Bloomberg story, no comments allowed.

The pointer is through Ted Gioia, don’t forget his new and excellent book How to Listen to Jazz.

Larry Summers says it is worth a rethink:

Former Harvard University President Lawrence Summers suggested that the school consider curbing annual payouts from its world-record $37.6 billion endowment to reflect the likelihood of lower investment returns.

Real, or inflation-adjusted, short-term interest rates have been falling steadily since 1999 and are effectively projected by financial markets to be around zero percent in the long-run, Summers said in a presentation Friday to a National Bureau of Economic Research meeting in Cambridge, Massachusetts, where Harvard is based.

“If it makes sense for Harvard University to pay out 5 percent of its endowment in 1999 when the real interest rate was 4 percent, it’s really quite unlikely that it makes sense to pay out 5 percent of its endowment in 2016 when the real interest rate is zero,” said Summers, a former U.S. Treasury secretary who is now a professor at Harvard.

I’ve never had a good handle on what you might call “the welfare economics of endowments,” in part because I don’t think economists have a good theory of endowments period.

One normative view is that if g > r, funds should simply accumulate in the endowment, more or less indefinitely, to further maximize societal wealth.  The g > r condition might hold for Harvard, though it is hard to measure what the school’s borrowing rate consists of.  Arguably new money at the margin comes from donations rather than from loans or bond issues.

A second view is that inequality is bad, and institutions tend to become sluggish and excessively bureaucratic in the longer run.  Perhaps every now and then they should be required to “start afresh”; a’ la Jefferson: “every now and then higher education must be refreshed…” etc.  That would suggest a higher payout rate.  You will note that the law mandates a payout rate of five to six percent for charitable foundations; Harvard isn’t a foundation, but analogous factors might apply.

A third view is to note that income inequality has gone up, and that means higher returns from investing in Harvard students, even if overall rates of return in the economy are low.  We know that the variance of corporate returns is much higher than it used to be, and many of those successful corporations stem from Harvard, MIT, and Stanford, among other top schools.  That would suggest spending more money today, because the Harvard endowment may not always be so valuable in terms of the uses to which it can be put.  Low rates of return on (most) investments are more reason to follow this advice and keep on spending, not less reason.  Can you imagine a better investment these days than Harvard human capital?  You will note that in this view “keeping Harvard at the top,” while a goal, is not the number one consideration.

There is something to be said for all of these perspectives, but mine is closest to number three.  In any case the question deserves closer consideration than I see it receiving.

Conducted by Arjun Jayadev and Josh Maso, here is one bit:

John Hicks was a stammerer, and so when you had an ordinary conversation with him, every utterance started with uh, uh, uh, uh, uh, uh, uh, uh, uh and sometimes was interminable. And then the answer would sort of burst forth rapid fire and then he would start all over again. But he was fond of poetry. When he was a student he had been the poetry editor for an Oxford student paper. He had memorized lots of poetry, including the whole fifth canto of the Divine Comedy in Italian. Now and then when you talked with him he would quote something, and that would flow perfect without stammering. Later on we were staying outside Sienna, and he would visit there regularly. At one point we were out with a bunch of students – it was the opportunity of their life
to sit and listen to Hicks. I brought up the poetry, and he explained it this way: He had trouble falling asleep. So the way he would get to sleep was he would set his mind to rehearsing or remembering one stanza of poetry for each century, starting in four or 500 B.C. And he gave some examples and then he said, but from the second to the ninth century there wasn’t much worth remembering.

And this:

I first met Hayek personally in Salzburg in 1975-­1976.  I met him several times after that at UCLA, Claremont, and Freiburg, and he was always gracious. He definitely was pleased by the
revival of interest in his work but, I believe, did not really want slavish followers.  In particular, I remember a pamphlet he had written for Institute of Economic Affairs in London on a currency reform proposal and I raised a theoretical objection to his proposal.  I remember walking with him to the UCLA Faculty Club for lunch and explaining what I thought was wrong.  He got quite worried and said he wanted to think more about it. I do not think he found a satisfactory answer and, as far as I can recall, he stopped promoting the proposal.

Leijonhufvud these days is somewhat of a neglected figure, but the interview has numerous points of interest.