That is the new piece by Veronique de Rugy, Ryan Daza, and Daniel Klein, the abstract is this:

From 2013 to the present in 2015, the Export-Import Bank has been widely and actively discussed, because its charter was expiring and because people then wrangled (and still wrangle) over its extension and possible recharter. Working from a list of the top 200 economics blogs, we examine the discourse on the Export-Import Bank. We find that classical liberal economists were very often highly vocal in opposition to the institution, but that left economists were mostly silent. The impetus of our investigation is to promote reflection on a question of political psychology: Why weren’t left economists more opposed and more vocal on the issue?

Jeremy Horpedahl asks a related question about defending Uber and Lyft.  Both pieces are from the latest issue of EconJournal Watch.

A loyal MR reader writes to me:

If you taught the principles of effective altruism to a rich person in (say) 1400, what would they have thought was the most effective thing to do with their money?  What was in fact the most effective thing they could have done?

I say send some money to Henry IV.  On the year 1400 Wikipedia notes:

January – Henry IV of England quells the Epiphany Rising and executes the Earls of Kent, Huntingdon and Salisbury and the Baron le Despencer for their attempt to have Richard II restored as king.

England and the Industrial Revolution seemed to have worked out OK, and besides the Henriad provides some of Shakespeare’s most profound work, Orson Welles too.

I think you can see the problem.

But what would a rational Effective Altruist have thought at the time?  How about revising those early versions of the Poor Laws?

Alternatively, 1400 also was the year Chaucer died, and he was a pretty smart guy.  Since he worked for Henry’s father and was close to him, he might have given good advice, if only for self-interested reasons.  But who in 1400 was the best or most logical representative of Effective Altruism?  The theologian Alan of Lynn?  He might have told you to invest the money in making indexes of books, which seemed to be his main interestJean Gerson, if one looks to France for a thought leader, focused his energies to reconciling the Great Schism in the papacy.  Good idea or bad?  As Zhou Enlai said

The NYT symposium is here, including Robert Reich, Dan Ariely, and myself, among others.  Here is my piece, excerpt:

One plausible estimate suggests this additional pollution has been killing 5 to 27 Americans each year, with that number worldwide reaching up to 404 as a maximum.

To put that number in context, the World Health Organization estimates that about seven million people die each year worldwide from air pollution. Even within the United States, early deaths from air pollution have been estimated to run about 200,000 a year, in comparison to which the losses from the Volkswagen scandal are a rounding error. For the American deaths, however, the culprits are often cars, trucks and cooking and heating emissions, so there is no single, evil, easily identified wrongdoer at fault. As Pogo recognized, often the real enemy is us.

Here are alternative estimates of the death from Volkswagen, published after my piece was set to run but the comparisons do not change fundamentally.  From that same article here are two paragraphs of note:

Don Anair, deputy director of the vehicles program at the Union of Concerned Scientists, said the precise effect of the Volkswagen fraud would require intense and complex computation.

Still, he cautioned against taking the view that the Volkswagens have reversed the progress with pollution from automobiles. Since the standards went into effect from 2004 to 2009, he said, emissions of nitrogen oxides have been 90 percent lower. “It’s not like this is going to offset the majority of the benefits of these standards,” he said. “But there will be some impact, and we need to get a better handle on it.”

“Since the standards went into effect from 2004 to 2009, he said, emissions of nitrogen oxides have been 90 percent lower.” is a sentence which I fear will not receive much attention in the current debate.

Brink Lindsey is the editor, and I am one of the experts (is anyone an expert on economic growth?), here are the other contributors, and that is also a link to the underlying on-line symposium.  It is a $6.99 ebook on Amazon.  Here is Cato’s home page for the ebook.

The award announcement includes a description of her work (with further links), basically she does health care economics at MIT.  In particular she considers when IP restrictions might hinder rather than support further innovation.  Here is her home page, she also has interesting papers on prizes.  Here is her research statement (pdf), interesting throughout, a very good selection from the committee.

Elsewhere, Matthew Desmond works on eviction as a cause and not just a symptom of poverty.

Asymmetric Information and Signaling

by on September 29, 2015 at 7:25 am in Economics, Education | Permalink

MRUniversity now has its own video production team! We are continuing to work with the artists at Tilapia films to produce outstanding videos for teaching economics–these videos work great with our textbook, Modern Principles. Our in-house production team will be working to polish our “regular” videos in a way that enhances the learning experience. You can see an example of the new style in the video below featuring Tyler on signaling.

Our Principles of Economics course is now complete. You can guess what is coming soon!

That is the title of my new piece in MIT Technology Review. It’s about a near future where bosses can measure the productivity of workers through software and surveillance more accurately than is now the case.  Productivity will go up, but it is not all rosy, here is one excerpt:

Individuals don’t in fact enjoy being evaluated all the time, especially when the results are not always stellar: for most people, one piece of negative feedback outweighs five pieces of positive feedback. To the extent that measurement raises income inequality, perhaps it makes relations among the workers tenser and less friendly. Life under a meritocracy can be a little tough, unfriendly, and discouraging, especially for those whose morale is easily damaged. Privacy in this world will be harder to come by, and perhaps “second chances” will be more difficult to find, given the permanence of electronic data. We may end up favoring “goody two-shoes” personality types who were on the straight and narrow from their earliest years and disfavor those who rebelled at young ages, even if those people might end up being more creative later on.

The closer is this:

I wonder, by the way, if MIT Technology Review will tell me how many people clicked on this article.

Do read the whole thing.

D’Erasmo, Mendoza, and Zhang have a new NBER working paper on this question.  It is the most serious and scientific approach to American debt sustainability I have seen, ever.  Here are two key sentences:

The dynamic Laffer curves for these taxes [capital taxes in the U.S., labor taxes in Europe] peak below the level required to make the higher post-2008 debts sustainable.


The results of the applications of the empirical and structural approaches paint a bleak picture of the prospects for fiscal adjustment in advanced economies to restore fiscal solvency and make the post-2008 surge in public debt ratios sustainable.

One point the authors emphasize is that, unlike after earlier episodes of American debt binges, America today has not reestablished a comparable primary surplus.  The authors suggest taxes on labor or consumption can restore fiscal solvency, but higher taxes on capital won’t work, given dynamic and Laffer curve considerations.  They do not devote comparable attention to changes in the trajectory of government spending.

It is wrong to call this “science” outright, but it is the closest to science we have on these questions.  There is a possibly different ungated copy here (pdf).

And along related lines, consider this new Brookings study of boosting the top tax rate to fifty percent, by Gale, Kearney, and Orszag:

We calculate the resulting change in income inequality assuming an explicit redistribution of all new revenue to households in the bottom 20 percent of the income distribution. The resulting effects on overall income inequality are exceedingly modest.

You will not hear everyone shouting that one from the rooftops.  And of course it does not all get redistributed to the bottom twenty percent, believe it or not.

Not so well:

…the time when the country was able to make economically unprofitable investments on the basis of political motives is long gone. Beijing had intended to invest more than $900 billion in infrastructure expansion in Eurasia. However, the money is now needed to stabilize its stagnating economy and nervous financial markets. China‘s currency reserves decreased drastically in August.

Due to financing difficulties a number of infrastructure projects have come to a standstill. For example, the gas pipeline known as “Power of Siberia,” the subject of an agreement signed by Russia and China in May last year, is in danger of flopping. In addition to this, the release of funds for the construction of the Altai gas pipeline to connect western Siberia and China has been delayed indefinitely.

At a more basic level, the OBOR represents an economic step backwards: instead of placing more emphasis on domestic demand, Beijing is speculating on new export markets in unstable regions such as Pakistan. The overcapacity of Chinese state-owned enterprises are not addressed but simply exported abroad. In this way the leadership is hampering its own ability to overcome the structural crisis of the Chinese growth model.

For the time being, OBOR remains a speculative bubble…

At the same time, there is a lack of partners for the OBOR initiative: China is virtually on its own. The Chinese leadership has until now only been able to reach a handful of vague cooperation agreements, such as those with Russia and Hungary. But none of those states (and maybe not even China itself) know what OBOR really means. Xi Jinping wants to promote the idea of a “community of common destiny”. He has, however, not been able to convey what this term signifies and he has failed to convince other states why the OBOR should be attractive for other countries.

The full story is here, and here is my earlier post on The New Silk Road.

Robin Hanson’s new book

by on September 27, 2015 at 9:51 pm in Books, Economics, Philosophy, Science | Permalink

The Age of Em: Work, Love and Life When Robots Rule the Earth

Pre-order your copy now.  The book’s home page is here.

Claims about cars

by on September 27, 2015 at 2:21 pm in Current Affairs, Economics, Law, Science, Web/Tech | Permalink

New high-end cars are among the most sophisticated machines on the planet, containing 100 million or more lines of code. Compare that with about 60 million lines of code in all of Facebook or 50 million in the Large Hadron Collider.

The Gelles, Tabuchi, and Dolan NYT piece is interesting throughout.  I thought of a parallel with empirical research in economics.  In the 1980s, often you could pick up a research paper and know rather quickly how good it was, if only by glancing at the basic technique and source of data.  These days the model, estimation, and data collection are so complicated and non-transparent that the errors, however large or small they be, are very difficult to find.

You’ll find a list of skeptical worries here from Chris Buckley, most of them justified.  In a nutshell, if you can’t believe their gdp numbers you also can’t believe their cap and trade plan.  I am nonetheless more optimistic about this recent development.  It signals a few things:

1. The Chinese have decided to make “doing something about carbon” a potential source of soft power in the international arena.  They are giving themselves an option on this path, and in the meantime trying to minimize the reputational deficit they face from being the world’s largest source of carbon.

2. The Chinese plan to cut pollution in at least some of their major cities soon, and they want to claim credit for that action in advance.  (In fact they are surprised how rapidly some of those days of blue skies have appeared in Beijing, whether that be the added regulation or the economic slowdown.)  “Carbon emissions” and “pollution” are hardly identical, but still the government is repositioning itself rapidly on the issue of pollution more generally.  This is one welcome part of that broader shift, so don’t worry if not all the details add up.

3. The Chinese leadership expects the domestic economy to be weak for a while, so they can announce a semi-serious carbon cap and meet it, without actually giving up any economic growth.  Of course this #3 isn’t good news on the economic front, but maybe the Chinese government first does need a period of time where such a policy has zero economic cost.

The evidence from the European Union is that their cap and trade program hasn’t worked well, mostly because of time consistency problems, namely that more and more permits are issued and the cap ends up weak over time.  That same problem may or may not apply to China.  But even a strong pessimist about cap and trade can be modestly optimistic about the new Chinese announcement.

I will turn the mike over to Chris Blattman:

It’s a business plan competition for $50,000, and I think it’s a contender.

In 2011 the Nigerian government handed out 60 million dollars to about 1200 entrepreneurs, and three years later there are hundreds more new companies, generating tons of profit, and employing about 7000 new people.

David McKenzie did the incredible study.

24,000 Nigerians applied, the government selected about 6,000 to get some training and advice to develop their plan, the plans were scored, and about 1,200 were funded. They got an average of $50,000 each. Fifty thousand US dollars! Who the hell thought this was a good idea?

All the highest scoring plans got funded automatically, but McKenzie worked with the government to randomize among the runners up.

The results are amazing. Looking just at the people who had no firm to begin with, 54% of the control group have a firm after three years, compared to 93% of those who got the grant. And these firms are bigger. Just 11% of the control group have a firm with at least 10 employees, compared to 34% of those who got the grant. They’re more profitable too.

If you are the President of a developing country, one of the great problems that will occupy your thoughts is: how to get more people jobs? How to grow domestic businesses? Even I, Mr. Cash, did not think big grants would be the answer.

These entrepreneurs are not the deserving poor, to be sure, but the employees are more likely to be. They made $143 a month, so they probably weren’t the poorest of society. But 7000 people earning $7 a day they might not have earned otherwise—that is something. And this ignores the multiplier: the expansion of suppliers, the people employed by the 7000 employees spending that money, the taxes collected by the state, and so on.

Two other things occur to me:

  1. What if, in 10 years, we learn that after all the struggle to build infrastructure and services and other stuff was bullshit, and ALL ALONG we should have just been funneling more cash to the middle and bottom. I do not believe the cashonistas should go so far, but today I wonder.

  2. I should start responding to all the emails I get from Nigerians promising me $50,000 in cash.

…it makes sense to look beyond inflation—and to consider targeting nominal GDP (NGDP) instead…

A target for nominal GDP (or the sum of all money earned in an economy each year, before accounting for inflation) is less radical than it sounds. It was a plausible alternative when inflation targets became common in the 1990s. A target for NGDP growth (ie, growth in cash income) copes better with cheap imports, which boost growth, but depress prices, pulling today’s central banks in two directions at once. Nominal income is also more important to debtors’ economic health than either inflation or growth, because debts are fixed in cash terms. Critics fret that NGDP is hard to measure, subject to revision, and mind-bogglingly unfamiliar to the public. Yet if NGDP sounds off-putting, growth in income does not. And although inflation can be measured easily enough, central banks now rely nearly as much on estimates of labour-market “slack”, an impossibly hazy number. Most important, an NGDP target would free central banks from the confusion caused by the broken inflation gauge. To set policy today central banks must work out how they think inflation will respond to falling unemployment, and markets must guess at their thinking. An NGDP target would not require the distinction between forecasts for growth (and hence employment) and forecasts for inflation.

There is more here, congratulations to Scott Sumner and others…

Japan Times reports:

Consumer prices excluding fresh food fell 0.1 percent in August from a year earlier, the first drop since April 2013, the same month Kuroda embarked on a campaign of record asset purchases to rid Japan of its “deflationary mindset.”

My goodness is economics a difficult subject.  (Scott Sumner is implicitly surprised too.)  So why is this happening?

Many of you might be tempted to utter some version of the words “liquidity trap.”  Even if this is one of the more reasonable versions of the liquidity trap arguments, there remains a problem.

Liquidity trap arguments imply that someone’s marginal utility of holding money is basically flat, whether that be the banks, the bank shareholders, the customers — someone.  And the flatness holds for a bunch of relevant someones, not just a few people.  (Or is that a flat marginal utility curve for “money plus safe short-term bonds“?  Whatever.)  With a flat marginal utility curve of money there are multiple equilibria, just as multiple equilibria more generally plague liquidity trap models.  Velocity could be something other than what it is, because at higher or lower levels of cash balance holdings the rate of return on those holdings still would be the same.

Institutional frictions may play a role in setting the equilibrium.  So why an equilibrium with falling prices?  Prices are sticky to some extent, which tends to militate against those of the multiple equilibria where prices are falling.  One might expect the equilibrium where the aggregate of prices rises, if only slowly.  But then why would a slightly higher rate of price inflation turn back down to a lower rate?

A second view is that the money supply/credit supply is endogenous, a’ la Fischer Black, Basil Moore, and others.  Until the real economy does better, the force of M times V will be weak.  This view involves no particular commitment to the slope of the marginal utility of money schedule.  Post 2013, prices went up for a while, because people thought Abenomics might work, but now that they see it doesn’t prices are sliding back down again.

Yet a third view is that the Japanese simply haven’t tried hard enough yet to debase their currency, see for instance Krugman on credibility or various Scott Sumner posts.  In this context I would myself cite gerontocracy rather than credibility issues.

My best guess is that some version of #3 makes #2 true at the relevant margin, but I don’t think such matters are well understood.

Addendum: Scott Sumner comments, for any plausible measurement I still say the rate of price inflation is relatively low in a puzzling manner, relative to asset purchases.  Large increases in money are in principle capable of offsetting relative small declines in food and energy prices, and if they do not that is simply another way of restating the puzzle.