Economics

Quite a bit.  There is a new NBER Working Paper on this topic by Hagedorn, Manovskii, and Mitman, showing (once again) that most supply curves slope upward, here is one key part from the abstract:

In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.

There is an ungated copy here (pdf).  Like the sequester, this is another area where the Keynesian analysts simply have not proven a good guide to understanding recent macroeconomic events.

When I visited Santa Monica in January it struck me how much it reminded me of…Arlington.  Arlington is now essentially a part of Northwest, at least Arlington above Route 50 or so.  Arlington and Santa Monica have never been more alike, or less distinctive.

Parts of east Falls Church will meld into Arlington, and south Arlington will become more like north Arlington.  Real estate prices east/north of a particular line are rising and west of that line are falling.  Fairfax is definitely west of that line.

The Tysons Corner remake will fail, Vienna is not the new Clarendon, and the Silver Line and the monstrously wide Rt.7 will form a new dividing line between parts of Virginia which resemble Santa Monica and parts which do not.

Incumbents aside, no one lives in Fairfax any more to commute into D.C.  Why would you?  The alternatives are getting better and Metro parking became too difficult some time ago.  Fairfax is not being transformed, although some parts are morphing into “the new Shirlington.”  Most of it will stay dumpy on the retail side.  Annandale will stay with Fairfax, whether it likes it or not.

For ten years now I have been predicting various Fairfax restaurants will close — casualties of too-high rents — and mostly I have been wrong.  The good Annandale restaurants are running strong too.  Annandale won’t look much better anytime soon, thank goodness for that.

“Northern Virginia” is becoming two different places, albeit slowly.

Based on my paper, Lessons from Gurgaon, India’s Private City (with Shruti Rajagopalan) I discuss private cities with Russ Roberts over at EconTalk this week.

I think the conversation went well but I haven’t heard it yet so let me also take the time to point you to my favorite recent EconTalk, Russ interviewing Greg Page, the former CEO of Cargill, the largest privately-held company in America. Their discussion covers the global food supply, false definitions of national food security, the role of prices, comparative advantage and more. It’s a great discussion.

Each monastery had its own estates, and all the people farming on these estates paid taxes in money and goods.  One of the main tasks of the stewards was to increase this income; for instance, by lending grain back to the peasants at high interest rates, or selling goods at market.  Before the destruction of the monasteries in the 1960s, they owned as much as half of Tibet’s farmland.

The description however is referring to the 15th century.  Another interesting part of the book concerns how, during Tibet’s “Golden Age,” the Tibetans tried to impose their language and culture on the neighboring regions of China, and with some success.

That is all from Sam Van Schaik, Tibet: A History.

Mostly, yes, although with some caveats (the headline of the piece doesn’t exactly capture this).  That is the topic of my latest column for The Upshot.  Here is one excerpt:

Niclas Berggren…and Therese Nilsson…have produced a fascinating series of papers on these questions, sometimes writing singly, sometimes together or with the collaboration of a variety of co-authors. Their most notable study is perhaps a paper they wrote together, “Does Economic Freedom Foster Tolerance?

…One of their most striking findings is that societies characterized by greater economic freedom and greater wealth do indeed exhibit greater tolerance toward gay people, a tendency suggesting that gay rights, including gay marriage, will spread globally as national economies liberalize and develop.

Some metrics of economic freedom count more than others:

This greater tolerance is strongly associated only with certain features of what has often been defined as economic freedom. For example, a smaller government, measured as a share of gross domestic product, is often included in so-called economic freedom indexes as an objective measure of freedom. But the data show that smaller government has a slight negative correlation with tolerance of gay people by heterosexuals. One implication is that many conservatives may be overly preoccupied with the size of government as a measure of how free societies actually are.

On the other hand, the data shows that when a society has impressive scores on property rights security and low inflation — two other components of economic freedom indexes — these characteristics are strongly and positively correlated with tolerance of gays. It’s possible that low inflation, and the behavior of a central bank, are stand-ins for the general trustworthiness of a nation’s government and broader institutions, and such trustworthiness helps foster tolerance.

The results for race are not nearly as strong, namely both freedom and prosperity are less clearly associated with higher levels of racial tolerance, although the correlation is still a positive one.

And there is this:

We are often told that education is an important remedy, yet it does not register as a meaningful factor in the cross-country data in this paper. Higher levels of education simply have not correlated significantly with higher levels of tolerance across countries.

Do read the whole thing.

The Peltzman Effect on the Golden Gate

by on January 24, 2015 at 11:49 am in Economics | Permalink

A safety barrier on the median was just installed on the Golden Gate Bridge; unintended consequences follow.

…in the days since the more secure movable median barrier was installed, the average speed of drivers on the approach from the north has jumped even though the speed limit was lowered from 55 to 45 miles per hour.

“We’re really seeing unreasonable speeds on the bridge, much faster than before,” said Priya David Clemens, a representative for the Golden Gate Bridge District. For whatever reason, including the possibility that drivers feel safer knowing a car won’t come barreling at them from the opposite direction, “we’ve noticed speeds going up,” Clemens said. “That’s why we asked the CHP to help us.”

More on the Peltzman effect.

Hat tip: Carl Danner.

Here is some media coverage of a recent Facebook study of its economic impact in terms of revenue and jobs.  Facebook claims it added $227 billion to the global economy, but they approached the question the wrong way.

The correct method is to treat jobs as a cost of Facebook, not a benefit, admittedly that is not how politics works nor is it how corporate PR works.  We should measure the benefits directly by consumer time use studies, much as Austan Goolsbee and Peter J. Klenow did in their paper on the internet (pdf).

My question today is this: what is the most accurate one line back-of-the-envelope estimate you can come up with for the gross benefits of Facebook, not bothering to subtract for the costs of running the site?  Here is one (hypothetical and illustrative) example, for America only:

100 million regular users, one hour a day, time valued at $10 an hour, and multiply for $365 billion a year.

You will notice this method implicitly captures the value and disvalue of the ads on Facebook.  The better and more useful the ads are, the more time people will spend on the site.

I don’t devote time to Facebook (I can thank MR for that), so surely you can do better than I in building a plausible one-line estimate.  Please leave your answer in the comments.

Jinfeng Luo and Yi Wen from the St. Louis Fed have a new working paper (pdf), “Institutions Do Not Rule: Reassessing the Driving Forces of Economic Development”:

We use cross-country data and instrumental variables widely used in the literature to show that (i) institutions (such as property rights and the rule of law) do not explain industrialization and (ii) agrarian countries and industrial countries have entirely different determinants for income levels.

In particular, geography, rather than institutions, explains the income differences among agrarian countries, while institutions appear to matter only for income variations in industrial economies.  Moreover, we find it is the stage of economic development (or the absence/presence of industrialization) that explains a country’s quality of institutions rather than vice versa.

The finding that institutions do not explain industrialization but are instead explained by industrialization lends support to the well-received view among prominent economic historians — that institutional changes in 17th and 18th century England did not cause the Industrial Revolution.

I am reminded of a puzzle which I think was first posed by Jeff Sachs.  Go back to 1960 and choose any measure of institutional quality you want.  Then see how well it predicts cross-national growth since then.  And that is doing the exercise knowing how the answer comes out!

The Supply Curve

by on January 23, 2015 at 7:25 am in Economics, Education | Permalink

Here is our video introducing the supply curve from our principles of micro-economics course at MRUniversity. Supply, Demand and Equilibrium are available now. Next week, elasticity!

Read the recent testimony of Robert E. Hall (pdf):

Most of the decline in participation occurred among teenagers and young adults. The fi nding that these e ffects tend to be larger in more prosperous families points strongly away from much of a role for rising influence of benefi t programs, because these programs, especially food stamps, are only available to families with incomes well below the median.
So what is going on here?  Could it be “culture”?  Hall cites, suggestively, time use surveys showing that sleep and personal consumption of video are up strongly.

This is just published in the Journal of Development Economics, from Chris Bidner and Mukesh Eswaran, and the title is “A Gender-Based Theory of the Origin of the Caste System of India”:

We propose a theory of the origins of India’s caste system by explicitly recognizing the productivity of women in complementing their husbands’ occupation-specific skill. The theory explains the core features of the caste system: its hereditary and hierarchical nature, and its insistence on endogamy (marriage only within castes). Endogamy is embraced by a group to minimize an externality that arises when group members marry outsiders. We demonstrate why the caste system embodies gender asymmetries in punishments for violations of endogamy and tolerates hypergamy (marrying up) more than hypogamy (marrying down). Our model also speaks to other aspects of caste, such as commensality restrictions and arranged/child marriages. We suggest that India’s caste system is so unique because the Brahmins sought to preserve and orally transmit the Hindu scriptures for over a millennium with no script. We show that economic considerations were of utmost importance in the emergence of the caste system.

There are ungated versions of the paper here.  Here are earlier MR posts on the Indian caste system.  I think I am not enough of a rational choice theorist to believe in any explanation of this sort, still it is sometimes better to try and fail than never to try at all…

The pointer to this paper is from Michael Clemens.

Fighters for one of the factions battling for control of Libya seized the Benghazi branch of the country’s central bank on Thursday, threatening to set off an armed scramble for the bank’s vast stores of money and gold, and cripple one of the last functioning institutions in the country.

The central bank is the repository for Libya’s oil revenue and holds nearly $100 billion in foreign currency reserves. It is the great prize at the center of the armed struggles that have raged here since the overthrow of Col. Muammar el-Qaddafi in 2011.

There is more here.  And in collapsing Yemen, the Iran-funded Houthi fighters seem to have the central bank tightly under guard.  Mario Draghi does not in fact have the toughest job in the world.

Here is an update from Japan:

Four years after the Bank of Japan set a 2 percent inflation target, price gains may still be coming up short, according to a survey of economists by Bloomberg News.

Consumer prices will rise an average 1.4 percent the fiscal year through March 2017, after failing to reach 2 percent — stripped of fresh food and a sales-tax boost — in any of the years since the goal was set, the median of 16 estimates shows. Governor Haruhiko Kuroda wanted to get there in about two years when he unleashed his record stimulus plan in April 2013.

Here are further data points from Krugman about other locales.

I am not seeking (today) to argue about liquidity traps, credibility, and the like.  Clearly the Japanese central bank can influence inflation at least somewhat, and recall the BOE helped bring inflation in at over five percent but a few years ago.  The ECB really could do much more.  But my view is this:

1. Most countries have labor market incumbents with sweet real wage deals, deals which could not be renegotiated anew today because the world has seen a repricing of labor downwards for the wealthy countries.

2. Higher rates of price inflation would cut into those deals and thus high rates of price inflation are unpopular.  Voters don’t quite understand the monetary economics here, but they have a vague sense that “inflation screws them.”

3. We are no longer at the point where two percent inflation is easy to achieve in Europe or Japan.  Central banks are doubted.  To achieve two, they would have to shoot for four, and thus announce a target of four.  Few voters wish to hear this, and furthermore a credible stab at four percent inflation might in fact bring three percent inflation or maybe more.  A non-credible central bank can indeed still debase its currency, yet the achievable targets are given by lumpy notches, not a smooth sliding scale.  In the case of the eurozone, too high an inflation target is probably illegal as well, given the sole mandate of price stability.

4. We thus end up stuck having central banks which announce a target of two percent but undershoot it.

As for Japan, here is a clue from the same article:

While Kuroda’s campaign — which has seen the BOJ’s balance sheet dwarf that of counterparts relative to the size of the economy — has spurred bank lending to the biggest jump in two decades and seen the end of outright deflation, it has yet to spark pay rises big enough to secure the 2 percent CPI target.

“It’s necessary to create an environment where wages rise sustainably,” said Kinoshita…

This also helps explain why European QE would need to be shock and awe, why it won’t be, and why it won’t help that much after all, even though it is better than doing nothing.  Few governments wish to boast they are lowering the real wages of their employed middle class citizens more rapidly than would otherwise be the case.  Reaping some extra votes from the marginally unemployed is not going to swing the electoral calculus on that one.

Let’s not blame the policymaker or the journalist.  I blame the economists who promote the notion that higher rates of inflation will boost rather than erode real wages.  That’s going to leave policymakers — and voters — waiting for a long, long time.

1. Toilet paper is shrinking, the size of the individual sheets that is.  (That is probably the closest we will get to hyperinflation.)  Does the average American really use 46 sheets a day?  That sounds like an overstatement.

In contrast to this commodity, I usually want for food portion sizes — especially ice cream — to be downsized.

2. I say both men and women are understating their number of sexual partners.  Contrary to what is portrayed in this chart, I postulate an American male average of about four.  I do not agree with the common claim that American men will overstate their number of partners.

The pointer is via Rayman.

Is your car’s engine noise a lie?

by on January 22, 2015 at 1:48 am in Economics, Science | Permalink

Stomp on the gas in a new Ford Mustang or F-150 and you’ll hear a meaty, throaty rumble — the same style roar that Americans have associated with auto power and performance for decades.

It’s a sham. The engine growl in some of America’s best-selling cars and trucks is actually a finely tuned bit of lip-syncing, boosted through special pipes or digitally faked altogether…

Fake engine noise has become one of the auto industry’s dirty little secrets, with automakers from BMW to Volkswagen turning to a sound-boosting bag of tricks. Without them, today’s more fuel-efficient engines would sound far quieter and, automakers worry, seemingly less powerful, potentially pushing buyers away.

There is more here, from Drew Harwell.