John McCain has introduced a bill to “encourage the wholesale and retail unbundling of programming by distributors and programmers.” Would a la carte pricing result in lower prices and greater consumer welfare or would it raise prices and result in less investment in television media? Time to take a look at the economics of bundling. In this video from our MRUniversity course on media economics I review the theory of bundling and then apply it to cable TV.
From Will Davies:
Wandering around Stratford Westfield the other day, I had a similar but more pessimistic thought: maybe capitalism is gradually morphing into the ‘actually existing’ state socialism of the old Eastern Bloc. (For international readers, Stratford Westfield is a vast shopping centre that was strategically located between the 2012 Olympic Park and the nearest train station, in the hope of rinsing unfortunate athletics fans for some cashen route to the games.) British capitalism already has many of the hallmarks of Brezhnev-era socialist decline: macroeconomic stagnation, a population as much too bored as scared to protest about very much, a state that performs tongue-in-cheek legitimacy, politicians playing with statistics to try and delay the moment of economic reckoning.
…My feeling is (and I discuss this in a book I’m just finishing) that neoliberalism has entered a post-critical, repetitive phase, in which certain things have to be spoken – delivery, efficiency, security, competitiveness – but in order to hold the edifice together, rather than to reveal anything as objectively ‘delivered’, ‘efficient’, ‘secure’ or ‘competitive. Political systems which do not create space for critique encounter this need for mandatory repetition immediately, as occurred to state socialism.
Eastern bloc socialism had to keep going through the 1970s and 80s, in spite of lagging growth and failed ideological hegemony, because nobody knew what else to do. This is the stage neoliberal policy-making has now reached. The difference is that there is still one area of our economy that is still moving and changing, namely the money economy, with corporate profits high and financial innovation ongoing. What seems to have changed, post-2008, is that the price paid for this monetary dynamism is that the rest of us all have to stand completely still. In order that ‘they’ in the banks can cling on to their modernity of liquidity and ultra-fast turnover, ‘we’ outside have to relinquish our modernity, of a future that is any different from the present. Finance is to our stagnant societies what the space race and the Cold War were to the Eastern Bloc countries of the 1970s and 80s – a huge cost that the state imposes on its public, with the result that cities and economies start to become tedious processions of the same.
The link is here (good photos), and the underlying Potlatch blog is here. The blog has plenty of interest, and this is an amusing post about advertising.
If Slow Rate Of Health Care Spending Growth Persists, Projections May Be Off By $770 Billion
David Cutler & Nikhil Sahni
Health Affairs, May 2013, Pages 841-850Abstract:
Despite earlier forecasts to the contrary, US health care spending growth has slowed in the past four years, continuing a trend that began in the early 2000s. In this article we attempt to identify why US health care spending growth has slowed, and we explore the spending implications if the trend continues for the next decade. We find that the 2007–09 recession, a one-time event, accounted for 37 percent of the slowdown between 2003 and 2012. A decline in private insurance coverage and cuts to some Medicare payment rates accounted for another 8 percent of the slowdown, leaving 55 percent of the spending slowdown unexplained. We conclude that a host of fundamental changes — including less rapid development of imaging technology and new pharmaceuticals, increased patient cost sharing, and greater provider efficiency — were responsible for the majority of the slowdown in spending growth. If these trends continue during 2013–22, public-sector health care spending will be as much as $770 billion less than predicted. Such lower levels of spending would have an enormous impact on the US economy and on government and household finances.
This was sent to me in an email from Rob Raffety, but I believe it emanates from Kevin Lewis. A link to the content is here. Another relevant article is here, and it also sounds a cautiously optimistic note.
Aristotle thought that usury and sodomy were related because in both cases there was attempted reproduction in an unnatural way. (Yeah, I don’t get it either. The argument would have been better as an argument against cloning. No matter, the argument was influential).
In a very good piece, Jeet Heer contrasts the ancients with Adam Smith and the liberal, free market tradition:
Aristotle’s linkage of non-procreative sex with usury profoundly influenced Christian thinkers. Thomas Aquinas, whose Summa Theologica codified the fusion of Aristotle with Christianity, argued that sodomy and usury were both “sins against nature, in which the very order of nature is violated, an injury done to God himself, who sets nature in order.” Echoing Aquinas, Dante placed sodomites and usurers in the same circle of Hell in the Divine Comedy. In his 1935 tract “Social Credit,” Ezra Pound, whose obsession with crackpot economics took him down many historical byways, argued that “usury and sodomy, the Church condemned as a pair, to one hell, the same for one reason, namely that they are both against natural increase.”
There is a flipside to this tradition of seeing sodomy as the enemy of the natural economy of the household: The counter-tradition of liberal economics founded by Adam Smith challenged the household model by seeing economics as rooted in the free trade of goods between households and nations. Precisely because Smith was more receptive to previously condemned or taboo economic activities like trade and manufacturing, he was also more open to sexual liberalism.
Smith’s friend Alexander Dalrymple is now thought to have written an anonymous tract, Thoughts of an Old Man (1800), recalling that the founder of modern economics believed that “sodomy was a thing in itself indifferent”—a radical thing to say even in private at a time when sodomy was a capital offence, condemned by church and state.
…Smith’s new and somewhat inchoate ideas were pushed further by Bentham, who in an unpublished essay observed that sodomy “produces no pain in anyone” but “on the contrary it produces pleasure.”
…It’s no accident that in 1787 Bentham wrote a “Defence of Usury,” which tried to convince Adam Smith to take a more benevolent view of the hitherto morally sanctioned economic activity. On the subject of both usury and sodomy, Bentham’s inclination was to take Smith’s liberal impulses to their logical end. Bentham was in favour of consensual adult acts (be they sexual or economic) that led to greater happiness, whether they violated pre-existing taboos or not.
It was, of course, also no accident that Tyler posted on Bentham last week. Here is a good extract of Bentham on usury.
Hat tip: The Browser.
Students are invited to apply to the Public Choice Outreach Conference. The Conference is an intensive lecture series on public choice and constitutional economics that has “graduated” some of the leading lights in economics and political science over the past thirty years. The conference will be held at George Mason University from Friday August 16 to Sunday August 18.
Graduate students and advanced undergraduates majoring in economics, history, international studies, law, philosophy, political science, psychology, public administration, religious studies, and sociology have attended past conferences. Applicants unfamiliar with Public Choice and students from outside of George Mason University are especially encouraged. A small stipend is available and meals and rooms will be provided by the conference (for non-locals). Space, however, is very limited.
Applications are due June 21. You can find more information here. Contact Lisa Hill-Corley if you have further questions about applications.
David Beckworth serves up another very good blog post and directs us to this graph of nominal gdp; it seems aggregate demand has been recovering steadily:
Scott Sumner directs us to Marcus Nunes, but here is a quotation from Scott:
In 1937 real government purchases recoiled 4.2% and the economy tanked. In 2012 real government purchases were 4.8% below the 2010 level and the recovery is slow!
Surely something is going on that´s making comparable ‘fiscal austerity’ so much less damning in 2012 than in 1937.
And that ‘something’ is monetary policy.
Here are further remarks from Scott.
There is much that economists actually agree on. Why don’t we have PACs or other groups emerge that push political solutions which represent common sense agreement on a variety of issues.
There is a selection issue. There are plenty of issues where economists agree and those views are enacted into policy, in part because special interests do not mind, do not have enough power, or perhaps even on net agree. Non-agricultural free trade, or rather near-free trade, is one example, the general adoption of capitalism is another. In those cases the PAC is not really needed.
When economists are not listened to, that often means strong special interests and/or strong voter sentiment stand on the other side of the equation. The numerous special deductions in the tax code, most of which have no efficiency justification, are examples.
Given such formidable enemies, who would fund an economists’ PAC? Who would donate? Why not just donate to a single issue PAC which covers an economist-friendly issue? Here is a list of the biggest PACS, starting with realtors and beer wholesalers, not ideologues or for that matter sensible policy analysts. Honeywell is third. Or if the single issue approach doesn’t excite a potential donor, I would think that more people are drawn to broadly ideological PACs, or perhaps “super PACs,” which would not quite fit with “pro-economist.”
You may know that the original American Economics Association had rather explicit political origins, as well as some religious and arguably even some racist overtones. It did not evolve into a PAC, and over time it has become something much more professional and geared toward some rather practical, non-political ends.
From Andrew Oswald, via the excellent Angus:, here is the opening bit:
If everyone likes your work, you can be certain that you haven’t done anything important. Conflict and pain go with the territory –that of changing how a profession thinks and furthering what we know about our world. The pressures on young researchers are to conform, to accept fashionable ways of analyzing problems, and above all to please senior professors and their own peers. Unfortunately this is bad for scientific progress.
The main difference between world-class researchers and sound researchers is not intellect; it is energy, single-mindedness, more energy, and the ability to withstand what will sometimes feel like never-ending disappointment, tiredness and psychological pain. Tenacity is almost everything.
I spoke on The 180, a Canadian radio show on CBC, on the open borders movement. Ironically, the streaming version appears not to be available to Americans. You can listen to the podcast, however. The interview starts at about 3:18. Jim Brown, the interviewer, was very gracious in letting me speak and I thought we covered a lot. Here are two lightly transcribed bits:
The problem with poverty is not that people don’t have skills it is that they are imprisoned in countries where their political or geographic institutions prevent them from making a living. When people move to the U.S. or Canada they are perfectly capable of making a decent living. It’s not that there is something wrong with the people in other countries. The poverty is the fault of the governments under which they live and the unfortunate fact that some people are just unlucky and they happen to be born in a barren region and because of the policies of other countries they can’t leave that barren region. I think that is wrong.
When someone with low skills comes into Canada that benefits people in Canada who have high skills as it helps them to focus on what they do best. As I like to put it, a gardener who works for a particle physicist is indirectly helping to unlock the secrets of the universe.
See OpenBorders.info for a superb resource on all aspects of this question.
Here is the update:
Over 40 years, Jamaica has been “rescued” on countless occasions. In the 1980s, the island became almost a byword for “structural adjustment”. Jamaica is one of the most indebted countries, spends twice as much on debt repayments as it does on education and health combined, and looks set to miss several millennium development goals (pdf). After four decades of austerity, the country has a few lessons for the likes of Greece, Portugal and Ireland.
The IMF has announced a $1bn (£650m) loan to “help” Jamaica meet huge debt payments due in coming years. As usual, the loan is to be accompanied by four years of austerity – precise details still pending, though a pay freeze, amounting to a 20% real-terms cut in wages, has been agreed.
This austerity will be applied to an economy that has effectively not grown since 1990. Huge debt has been a constant burden, with foreign debt payments of more than 20% of government revenue every year. When the financial crisis hit, the island was pushed into full-scale recession, before being pounded by Hurricane Sandy last year.
It seems nothing good is pending, economic growth is negative, and the debt to gdp ratio is 143%. I take it we can agree this is one case where stimulating nominal demand will not bring much in the way of dividends? Do we agree? Last year the inflation rate was over ten percent and the (nominal) exchange rate hit new lows. Do note the country ran a primary surplus last year and is attempting to move toward a balanced budget, so does anyone wish to pin this mess on fiscal austerity? Or is their austerity and its observed failings a symptom of other policies which went badly wrong?
The measured government budget deficit is about 6.1% of gdp, but I suspect if you start the calculation in 1990, in “cyclically adjusted terms” Jamaica will appear to be running a huge surplus and a very tight fiscal policy. After all, I do see unemployment estimates in the range of 13 to 14 percent. Isn’t that a classic sign of deficient aggregate demand?
I do wonder if we can agree on this case. And if we agree on this case, which more general lessons might we draw about the difficulty of inference from data…?
Addendum: This is a post about Jamaica and also about macroeconomic inference. If you are tempted to write a post in response, criticizing me on the grounds that I am postulating a historical equivalence between the United States and Jamaica, or if you try to cover your tracks with semantics, by suggesting that I am “implying” such an equivalence, or implying some other mistake, or if you are committing any number of other fallacies or equivocations in response to this post, put on the dunce cap and go to the back of the class. Please consider this a general warning to be attached to everything written by me on this site.
Extra: Ashok Rao offers good commentary on Jamaica (and India).
I have not read the underlying paper, but this summary seemed interesting enough to pass along, via Evan Soltas:
In a new working paper, Ricardo Reis of Columbia University and Alisdair McKay of Boston University…find that stabilizing aggregate disposable income plays a “negligible role” in stabilizing the economy as a whole. Transfer payments can indeed stabilize output, they find, but mainly through a different channel — not by changing disposable income in the aggregate, but by changing its distribution. Fiscal policy, in other words, is all about inequality.
“It’s the redistribution that has a lot of kick,” Reis said in an interview. “The usual argument for transfers is basically Keynesian. We find that has very low impact in our model.”
Reis and McKay reach this conclusion by building a complex macroeconomic model calibrated to U.S. data, but the intuition isn’t all that complicated. Transfer payments yield the highest amount of stabilization per dollar when focused on people who can’t effectively insure themselves against macroeconomic volatility — namely, people with little savings to draw on and limited opportunities to borrow.
…They also find — this is a surprise — that fiscal policy as currently designed does little to stabilize the economy. The most effective transfer programs, Reis says, constitute a small share of all transfers. “When we look at the whole set of stabilizers in the U.S., it turns out that even though food stamps are a plus, all of the other ones have near-zero impact. That means we’re not stabilizing very much,” Reis said.
If distribution matters above and beyond the disposable income variable, that might imply that the sectoral composition of fiscal policy is quite important and that sectoral factors are an important part of any stabilization (or non-stabilization) story.
It is a common argument that American government is run in the interests of rich people. But Eric Brunner, Stephen L. Ross and Ebonya Washington are in this month’s AEA Economic Policy journal with a different perspective:
We assemble a novel dataset of matched legislative and constituent votes and demonstrate that less income does not mean less representation. We show: (i) The opinions of high- and low-income voters are highly correlated; the legislator’s vote often reflects the desire of both. (ii) What differences in representation by income exist vary by legislator party. Republicans more often vote the will of their higher income over their lower income constituents; Democratic legislators do the reverse. (iii) Differences in representation by income are largely explained by the correlation between constituent income and party affiliation.
Here is one version of the paper (pdf).
A very good piece on apprenticeships from Stuart E. Eizenstat and Robert I. Lerman:
…firms interested in investing in the United States are finding too few workers with the skills needed to achieve the productivity and quality required in today’s globally competitive industries. The skills gap is real… U.S. unemployment remains at 7.5 percent, and only one out of two African American men in their early 20s has a job. A survey of employers published last year revealed that about 600,000 jobs go unfilled because of a lack of skilled labor….The central answer to the mismatch between jobs and employment is a 21st-century apprenticeship program.
…Although apprenticeships yield significant earnings gains for workers, this country has too few programs, partly because of the massive bias in public spending toward a college-only approach. Government spending on colleges and universities tops $300 billion per year; outlays to apprenticeship programs total less than $40 million annually. A public-private initiative could increase competitiveness and youth employment, upgrade skills and wages, achieve positive returns for employers and workers, and reduce government spending if companies played a larger role in skills development.
As I said in Tuning in to the Dropping Out:
Why should a major in English literature be subsidized with room and board on a beautiful campus with Olympic-size swimming pools and state-of-the-art athletic facilities when apprentices in nursing, electrical work, and new high-tech fields like mechatronics are typically unsubsidized (or less subsidized)? College students even get discounts at the movie theater; when was the last time you saw a discount for an electrical apprentice?
Kanon Mori, Yuki Sakura, Hinako Kuroki and Jun Amaki have been following the Nikkei 225 stock average obsessively since Prime Minister Shinzo Abe took office in December. The oldest of the foursome is Mori, but she is still only 23. The youngest is Kuroki, 16 and still in high school.
None of them are studying for a degree in economics, let alone playing the stock market. Instead, the four are members of a new idol group, Machikado Keiki Japan, and stocks play an important part in their performances.
“We base our costumes on the price of the Nikkei average of the day. For example, when the index falls below 10,000 points, we go on stage with really long skirts,” Mori explained.
The higher stocks rise, the shorter their dresses get. With the Nikkei index ending above 13,000, the four went without skirts altogether on the day of their interview with The Japan Times, instead wearing only lacy shorts.
While some have raised eyebrows over the group’s daring concept, Mori explained that they are merely letting the economy take charge of how they dress — mimicking economic trends of the past.
…Machikado Keiki Japan (roughly translated as Economic Conditions on the Streets of Japan) released their debut single, “Abeno Mix,” on April 7. It pays homage to Abe’s ultraloose economic policies that have been dubbed “Abenomics” by the media.
“Fix the yen’s appreciation. Quantitative easing. Don’t forget public investment,” a line in the dance-pop tune goes. “Monetary easing. Construction bonds. Let’s just revise the Bank of Japan Law.”
The group’s fans — who not surprisingly are 95 percent male, from high school to their 50s — have special chants that they perform during the song’s interlude.
The article is here, and for the pointer I thank @ElRob.
Here is my latest New York Times column, which has a specific part on how to address pandemics and a more general section on the evolving role of government in American society. In neither area are matters running especially well.
Here is one initial point, namely that it is difficult to commit to allow high prices upfront:
Research and development grants are a way to pay potential innovators up front — an important move, as an innovator can’t always charge high-enough prices for the value of its remedies when they’re actually needed.
That will lead to institutional failure, rooted in a mix of government and market failure. Therefore other rewards are needed, since the prospect of high prices does not adequately motivate. I thus call for some key drugs to be rewarded with prizes and for government to buy out the patent rights, if need be:
If anyone doubted a government pledge to pay big money for the rights to remedies, the patent’s value could be established by a competitive auction. Michael Kremer, a Harvard economics professor, outlined the procedure for such an auction in his research paper “Patent Buyouts.”
The larger problem is this:
OVER all, the American government seems to be turning its back on its traditional role of producing and investing in national public goods. If there is any consistent tendency in recent government spending, it is that spending on entitlements like Social Security and Medicare — which provide mostly private benefits — is rising and that investment and spending on national public goods is falling.
Do read the whole thing. I also suggest that (non-paternalistic) public health could be a suitable health care issue for Republicans, who presumably should be looking for alternatives to the status quo.
There are by the way two points which did not make the final cut for reasons of space. First, the current coronavirus in Saudi Arabia has not gone away as a source of potential problems. Second, the Bush Administration (43) did take some notable steps to return vaccine capacity to the United States, through both regulatory forbearance and HHS procurement. These are likely good policies since in a pandemic one cannot expect to rely on free international trade in a remedy but rather export controls are to be expected.
