Economics

Jeffrey Rothfeder has a very good piece on that question, here is one excerpt:

Somewhat surprisingly, cross-border capital flows are equally anemic. Despite the common perception that multinationals these days manufacture their products anywhere but the West, global foreign direct investment (which reflects the amount that companies earmark for doing business in other countries) has fallen to a mere 2 percent of global GDP from 4 percent before the recession.

Still, the most tangible metric that belies the Pollyannaish depictions of globalization is corporate financial performance, which is also a window into the fundamentals of local economies. Although most companies don’t separate out geographical earnings, revenue comparisons provide an apt picture — and few multinationals can boast big returns in global markets.

There is much more to the argument, do read the whole thing.

In a word, Vietnam.  Vietnam has about ninety million people and a relatively low per capita income, below by 2k by some measures.  It liberalized tariffs a good deal upon WTO accession, but since then has done some backsliding.  It has large numbers of state-owned enterprises, and its policies toward such enterprises could use more transparency and predictability, as indeed TPP would bring.  Most generally, Vietnam is not today a free country.  Bringing Vietnam into TPP would further ensure their attachment to a broadly liberal global trading order.  TPP also would bring free(r) labor unions to Vietnam.

Tuong Lai writes (see the first link above):

But Vietnam cannot play its significant geopolitical role until it fully develops economically and further liberalizes politically. And adopting the T.P.P.’s requirements — free trade unions, reduced state participation in the economy, greater transparency — will help Vietnam along that route.

Many potential TPP signers still have significant tariffs against Vietnamese textiles?  Here is Jack Sheehan:

Vietnam is set to gain the most from the TPP due to the potential for a greater share of the apparel and footwear market, particularly in the US and Japan.

In 2012, Vietnam exported almost $7bn (£4.2bn) worth of apparel to the US, which accounted for 34% of US apparel imports. Vietnam also exported $2.4bn worth of footwear.

The TPP will allow Vietnam to export apparel to the US at a 0% tariff rate, which will make Vietnamese exports even more competitive.

Here is an assessment from the Peterson Institute that Vietnam will be the biggest gainer from TPP.  Do you get that, progressives?  Poorest country = biggest gainer.  Isn’t that what we are looking for?  And if you are a deontologist, Vietnam is a country we have been especially unjust to in the past.

Yes, I am familiar with the IP and tech criticisms of TPP, and I agree with many of them.  But if you add those costs up, in utilitarian terms I doubt if they amount to more than a fraction of the potential benefit for the ninety million people of Vietnam.  TPP is more of a “no brainer” than a close call.

Most generally, one of the big dangers today is “The Great Unraveling of Globalization.”  Is the passing or the striking down of TPP more likely to contribute to that trend?  People, you are allowed only three guesses on that one.

Robot sentences to ponder

by on April 26, 2015 at 4:00 pm in Economics, Science | Permalink

Harnessing high-powered computing, color sensors and small metal baskets attached to the robotic arms, the machine gently plucked ripe strawberries from below deep-green leaves, while mostly ignoring unripe fruit nearby.

Such tasks have long required the trained discernment and backbreaking effort of tens of thousands of relatively low-paid workers. But technological advances are making it possible for robots to handle the job, just as a shrinking supply of available fruit pickers has made the technology more financially attractive.

…Machines are doing more than picking produce. Altman Specialty Plants Inc., one of the country’s largest nurseries, has been using eight, squat robots for the past two years to ferry more than 1.2 million potted roses and other plants to new rows as they grow larger. The $25,000, self-driving machines have occasionally gotten stuck in mud, but they freed eight workers for other jobs and ultimately paid for themselves in 18 months, said Becky Drumright, Altman’s marketing director.

And we used to say that gardening was one of the hardest jobs to automate.  By Ilan Brat, there is more here.

Getting a speeding ticket is not a feel-good moment for anyone. But consider Reima Kuisla, a Finnish businessman.

He was recently fined 54,024 euros (about $58,000) for traveling a modest, if illegal, 64 miles per hour in a 50 m.p.h. zone. And no, the 54,024 euros did not turn out to be a typo, or a mistake of any kind.

Mr. Kuisla is a millionaire, and in Finland the fines for more serious speeding infractions are calculated according to income. The thinking here is that if it stings for the little guy, it should sting for the big guy, too.

…The fines are calculated based on half an offender’s daily net income, with some consideration for the number of children under his or her roof and a deduction deemed to be enough to cover basic living expenses, currently 255 euros per month.

Then, that figure is multiplied by the number of days of income the offender should lose, according to the severity of the offense.

Mr. Kuisla, a betting man who parlayed his winnings into a real estate empire, was clocked speeding near the Seinajoki airport. Given the speed he was going, Mr. Kuisla was assessed eight days. His fine was then calculated from his 2013 income, 6,559,742 euros, or more than $7 million at current exchange rates.

The full story is here, and in a much earlier MR post I argue against the practice.  Wealthier people have a higher value of time, and it is probably efficient to allow them to speed more.

That is the subtitle, the title proper is Pedigree, by Lauren A. Rivera.  This is a very good book on the microdynamics of inequality and the important role played by social networks, how you present yourself, and…pedigree.  Not all of it is a revelation, because by now many of these mechanisms are well-known.  Still, it is unfailingly intelligent, well-written, and it documents these matters better than any other book I know.  Here is one excerpt:

…individual sponsors did not need to be high up in the organization.  HR professionals and school teams typically trusted the recommendations of even the most junior firm employees.  Insider-outsider status was more salient than vertical position within a firm.  First-year analysts or associates could successfully push through an individual they knew from class, athletics, extracurricular activities, their hometowns, or word-of-mouth to the interview phase, provided that they could successfully get the application on the “right desk,” in person or via email…In addition, the tie to an individual sponsor did not have to be strong.

More generally, it is often better to have a contact “within” an institution rather than at the very top.  Recommended, for all those who have an interest in such topics.

Via Chug, here is what happens when you plate junk food as if it were high-end food, a good link.

It is now available, notice the new subtitle The Economic Malaise at a Technological Plateau: Problems of the United States and Oppotunities for China.

I will be doing some book promotion in China in May, and soon I will have a few questions for you all.

ChinaTGS

Financial Post: Canada is now the first country in the world to require that for every new regulation introduced one of equivalent burden must be removed.

C-21, has been operating as policy for several years already, which means that the costs of new rules must be quantified and equal or greater costs removed. It essentially caps the cost of rules coming directly from regulations.

This is not quite as radical as it sounds. As I understand it, the law applies only to new bureaucratic rules and regulations not to legislation. Nevertheless, it’s reasonable to force regulatory bureaucracies to operate within a budget so that new rules are promulgated only when the new rule is expected to be an improvement over existing rules taking into account all costs.

The announcement is here., with lots of detail.  Here is the first paragraph:

Roland Fryer is an influential applied microeconomist whose work spans labor economics, the economics of education, and social problems and social interactions.  His innovative and creative research contributions have deepened our understanding of the sources, magnitude, and persistence of U.S. racial inequality.  He has made substantial progress in evaluating the policies that work and do not work to improve the educational outcomes and economic opportunities of children from disadvantaged backgrounds.  His theoretical and empirical work on the “acting white” hypothesis of peer effects provides new insights into the difficulties of increasing the educational investments of minorities and the socially excluded.  Fryer is the leading economist working on the economics of race and education, and he has produced the most important work in recent years on combating the racial divide, one of America’s most profound and long-lasting social problems.

Here are previous MR posts about Fryer, lots of interest there, a very good and deserving choice.  His home page is here.

Joseph Heath has written an interesting and thoughtful comment on my review of his excellent book Enlightenment 2.0 (fyi, we have never communicated but it turns out that Heath is a long time reader of MR.). Samuel Hammond concisely summarized on twitter part of Heath’s response:

In reply to @, Joseph Heath shares the dire Straussian reading of his own book: The US is Rome burning

Quite accurate but I want to focus on a different point.

Finally, Tabarrok suggests that I am “too sanguine about the role of politics.” I thought I was being fairly pessimistic about politics. I think the nub of the disagreement between Tabarrok and myself on this point – and certainly the basis of our major differences of political ideology – is that I am much more sanguine about the role of the state than he is. This is not the same as being sanguine about democratic politics. For example, he points out that:

In a large electorate, no individual’s vote is likely to change the outcome of an election. As a result, it doesn’t pay to be informed about politics nor to think about politics in objective and rational terms. Consider an individual who spends time and effort to be informed about politics. What does this individual receive in return for their investment? The same thing as the uninformed individual. Since better information doesn’t lead to better consequences, it doesn’t pay an individual to be informed.

I couldn’t agree more….Indeed, the sort of considerations that motivate Tabarrok’s enthusiasm for making decisions through betting markets are, I would guess, quite similar to the ones that motivate my own enthusiasm for cost-benefit analysis. The key difference is that Tabarrok (and Bryan Caplan) tend to assume that democracy gives “the people” much greater control over the behaviour of the state than it actually does. In the background there is, I suspect, a somewhat public-choicy picture of legislation as a complex process of preference-aggregation. By contrast, I follow Ian Shapiro in thinking that we need to get past these sorts of “general will” theories of democracy.

There is one point in the last chapter where I say what I really think, but again, it might easily be overlooked. So let me just say, for the record, that I was also dead serious when I wrote the following paragraph (and that it comes closest to summarizing my considered view):

It is important to recognize that modern democratic political systems involve a delicate compromise between, on the one hand, the desire for public control of decision-making and, on the other hand, the need for rational, coherent policy. Democracies need to be democratic, but they also need to work, in the sense that they need to produce a state that effectively discharges its responsibilities. Thus they have a variety of institutional features that allow them to function even when the democratic public sphere is completely degraded. They do so largely by shifting power and control away from elected representatives toward experts. Even in the United States, where this is difficult to do, one can find examples all over. The most obvious example is the enormous role that the Supreme Court has played in making decisions that, in most other democracies, would be left to the legislature. But one can see it in other areas as well, such as the amount of autonomy that government agencies have or the increased use of cost-benefit analysis in public decision-making (338).

So if you want to know what I really think, it’s that we are not going to be able to fix the problem of increased irrationalism in politics — at best we will be able to limit its most toxic effects. As a consequence, the legislature will increasingly become a sideshow, with the two other branches of the state assuming more and more of the responsibility for actually governing.

Heath has hit on an important similarity and difference in our views. We are both skeptical about democracy as a way of making rational, coherent policy. But in response to the defects of democracy I want to devolve more decisions to the individual and the market while Heath wants to centralize more decisions to the state and expert bureaucracies.

One of the reasons that I oppose the extension of democratic politics into every aspect of modern life is precisely that in trying to do too much, democracy delivers incoherence, gridlock and frustration, forces that eventually undermine its own legitimacy. I worry about democratic legitimacy because I see democracy as a check and balance on Leviathan (while Heath sees it as a check on government by experts).

The legislature has become a sideshow. But I worry, because the more Congress is held in contempt the greater the support for a bold executive that takes charge, makes decisions and gets things done. Under these pressures, executive power has grown not just in the United States but also in Canada and Great Britain (on this theme see F.H. Buckley’s The Once and Future King.) But for all its faults, the legislature and the rule of law are more conducive to liberty than the executive and the administrative state. Legislators are satisfied with reelection and a bit of pork but executives hunger for greatness and in so doing they promote the real dangers, idolatry, the centralization of power and war.

In short, I worry that the pathologies of democracy drive the demand not for rational, technocratic government but for Caesarism.

Chad writes me:

What jobs (particularly ones we think of as being inherently beneficial to society) might America have too many of? Political journalism comes to mind this particular month, since we apparently have enough to carefully monitor the Chipotle orders of presidential candidates 19 months before the election. Writers might be another, particularly in a world of self-publishing.

One can imagine lots of reasons for a greater-than-optimal number of people in a particular profession, from government subsidies to cultural biases, but I’m curious if you have a gut feeling about any professions in particular.

A good question, in my view the answer is not so simple.  Writers and artists are indeed a possible nomination, but some of the demand for these professions is likely for consumption, which makes the overinvestment difficult to judge.  And what about lawyers?  Relative to the number of laws and regulations (too many in my view, but take them as given), it is not obvious to me that we have too many lawyers.  Someone has to tell companies when it is safe to proceed, or not.

How about too many people selling medical devices and other high margin items?  Too many people making alcohol?  Too many people raising and selling animal meat?  Those would be my picks.

The finance sector is another obvious culprit, but as a fraction of wealth I do not think it is larger than in the past.  Admittedly people in the finance sector may be engaging in the wrong activities, but I am not sure the case for fewer employees per se is so obvious.  Still, it is another candidate, if only because it (often) involves people selling high-margin items.

I had not known such a thing exists:

There are raisins stored in California warehouses as part of the U.S. government’s National Raisin Reserve — but the program may shrivel in the face of a Supreme Court challenge.

The National Raisin Reserve — which is overseen by the Fresno-based Raisin Administrative Committee — is part of post-World War II-era program that forces raisin producers to give part of their annual crop to the government to prevent an oversupply of the dried fruit. Controversially, the program seizes the raisins from the farmers without paying them, and that has created friction, lawbreaking farmers, and a Supreme Court case. One scofflaw farmer, Marvin Horne, has refused to surrender his raisins to the government and owes hundreds of thousands of dollars in fines and over 1 million pounds of the sweet dried fruit to Uncle Sam.

The controversial raisin-seizing program could soon be, however, a relic of history.

Several Supreme Court justices expressed doubts Wednesday that federal officials can legally take raisins away from farmers without full payment even if the goal is to help boost overall market prices.

The article is here, via Jeffrey Lessard.  Here is commentary from Ilya Somin, here is an IJ video on the case.

Do read the whole thing.  Excerpt:

There has been no sign of a reversal of the decline in labour’s share of total income and no body of research that supports the idea that it will. Productivity growth is definitely under way, at rates similar to those in the 1970s and 1980s, but well below the rates of the 1950s, 1960s, and 1990s. In particular, there is no sign that a burst of productivity growth will make up for the complete stall in productivity growth around the crisis, as Figure 3 shows.

Most importantly, there is no sign suggesting a departure from the decline in labour-force participation shown in Figure 6. Some commentators have declared a turnaround in participation based on recent monthly data, but Figure 9 suggests this is wishful thinking. Participation has declined along a straight line during the period of improving conditions in the labour market, suggesting a complete disconnect between participation and the state of the labour market.

Excellent throughout.

What are non-e sports for that matter?  Via Liam Boluk, I read this from Prashob Menon:

Last year’s League of Legends championship, for example, drew nearly 30 million viewers, putting it in line with the combined viewership of the 2014 MLB and NBA finals, or the series finales of Breaking Bad and Two and a Half Men, plus the Season 4 finale of Game of Thrones. As with most sports, competitive gaming is now firmly entrenched in the US college system, with the country’s largest collegiate league counting more than 10,000 active players, some of whom are on full athletic scholarships. Eager to capitalize on growing interest in the sport, Major League Gaming (MLG) opened the first dedicated domestic eSports arena in October 2014, and major brands such as Ford, American Express and Coke have begun forming partnerships with game developers, teams, players, event organizers and video distributors. The US Department of State has been issuing athlete visas to competitive gamers since 2013.

It’s becoming increasingly difficult to say eSports aren’t “real” sports, but the bigger question is whether it even matters. The media business is about eyeballs, and audiences are turning up in droves for the likes of Defense of the Ancients and League of Legends.

The economics indeed do not look so bad:

Moreover, eSports fans, unlike linear TV viewers, are highly engaged in the content. Major League Gaming, for instance, consistently beats the industry average on key digital ad metrics such as completion rates (90% vs. 72%), click-through rates (4% vs. 2%), and ad viewability (99% vs. 44%).

Here is Wikipedia on eSports.  I believe I have timed my birth at more or less the right time, so I will die of old age just when such institutions are taking over the world and pushing out baseball’s eight-team American League, as it ruled in 1968.

Jared Bernstein worries that it won’t.  But how can it not?

Let’s say an entrepreneur introduces a new product, call it the iPhone.  At first the relatively wealthy are the main buyers and at first a lot of the gains accrue to the IP holders.  Over time, however, the IP rents erode, smart phones become more popular, even with stupid patent laws smart phone innovations trickle down into cheaper models, and so on.  The middle class ends up better off.

Of course not all productivity gains are innovations.

Let’s say Ford can suddenly make cars — a known product — more cheaply.  Even in a world with market power, this expands output and lowers car prices, thereby raising real wages.  You might think labor won’t “get its fair share,” but still it should raise real wages, and that’s ignoring the possibility that wages in the auto plant might be bid up a bit.

So when some economists argue that faster productivity won’t raise middle class incomes, which model do they have in mind?

Even if you think income is shifting from capital to labor, how does the productivity gain worsen this shift?  (That is, real wages still ought to go up.)  Inquiring minds wish to know.

I am, by the way, familiar with a variety of diagrams showing a disconnect between productivity and real wages.  I’ll be happier with those when a) I know they are using common deflators, and b) they take adequate account of the possibly dysfunctional productivity in our hard to measure sectors of health, education, and government consumption.

Addendum: Read Scott Winship.

Dan Klein (from Abigail D.) directs my attention to an interesting paper by Fisher, Goddu, and Keil (pdf):

As the Internet has become a nearly ubiquitous resource for acquiring knowledge about the world, questions have arisen about its potential effects on cognition. Here we show that searching the Internet for explanatory knowledge creates an illusion whereby people mistake access to information for their own personal understanding of the information. Evidence from 9 experiments shows that searching for information online leads to an increase in self-assessed knowledge as people mistakenly think they have more knowledge “in the head,” even seeing their own brains as more active as depicted by functional MRI (fMRI) images.

Having done some further search on this topic, using Google, I can assure you that I now have a much better grasp on whether this hypothesis is true or not…