Economics

The state of West Virginia has paid for so many burials for indigent people who have died from drug overdoses that the funding has run out five months before the end of the current fiscal year on June 30.

Kitchen said there have been so many drug overdose deaths in West Virginia, it often takes two to three weeks for the state medical examiner to complete the required autopsies. He said families then have the added stress of not being able to carry out a funeral for weeks after a death occurs.

Here is the article, via Anecdotal.  Here is a good Christopher Caldwell piece on opioids.

In standard Austrian business cycle theory, artificially low rates of interest, as driven by monetary policy, induce investors to engage in too many long-term activities and overextend the structure of production.  A comeuppance later ensues, due to the malinvestments.

I suggest a very different fiscal version of this story.  Imagine a government that is perpetually in debt, and with voters who do not like new taxes, if you can stretch your mind that far.  There are also some constraints of borrowing.  The fiscal policy of this government thus is relatively active when interest rates are low, but contractionary when interest rates are high.  When interest payments eat up a smaller share of the federal budget, more goodies are given out.

In other words, with low interest rates, the government does indeed expand its activity, but in a manner oriented toward the present, through the medium of transfer spending.  Unlike private entrepreneurs the government is not a profit maximizer and instead it will pursue more votes when it can.

When interest rates eventually rise, money is taken away from transfer recipients and sent back to high-saving bondholders.  That is a kind of aggregate demand shock, or in Austrian terminology you could say that the structure of production had been geared too much toward the short term and now that is unsustainable and some adjustment costs will ensue.

The active agent here is government, and lower interest rates bring too much consumption, not too much investment.  An eventual reversal again creates some economic disruptions.  I think of that as Hayek’s theory in reverse.  When you mix that with the standard Hayekian account, I wonder how/whether those two kinds of disruptions interact.

…pay for white Irish women in the UK has outpaced counterpart male salaries since the 2000s, the report said.

Here is more on the appearance of some gender pay reversals.

The last time I was in Ireland I wasn’t blogging yet.  What riches lie here, let’s give it a start:

1. Poetry: I pick Joyce’s Ulysses, then Yeats and also Seamus Heaney, especially if the word “bog” appears in the poem.  A good collection is The Penguin Book of Irish Poetry, edited by Patrick Crotty.  Beyond the ranks of the super-famous, you might try Louis MacNeice, from the Auden Group, or perhaps Nuala Ní Dhomhnaill, who writes in Gaelic but has been translated by other superb Irish poets into English..

2. Novel/literature: Jonathan Swift: Gulliver’s Travels.  One of the very very best books for social science too, and one of my favorite books period.  After Joyce, there is also Oscar Wilde, George Bernard Shaw, Samuel Beckett, Lord Dunsany, John Banville (The Untouchable), William Trevor, and Elizabeth Bowen.  Iris Murdoch was born in Ireland, but does she count?  More recently I have enjoyed Anne Enright, Colm Tóibín, Eimear McBride, Claire Louise-Bennett, with Mike McCormack in my pile to read soon.  Roddy Doyle is probably good, but I don’t find him so readable.  Colum McCann somehow isn’t Irish enough for me, but many enjoy his work.  Can the Anglo-Irish Oliver Goldsmith count?  His Citizen of the World remains a neglected work.  The recently published volumes of Samuel Beckett’s correspondence have received rave reviews and I hope to read through them this summer.  Whew!  And for a country of such a small population.

3. Classical music: Hmm…we hit a roadblock here.  I don’t love John Field, so I have to call this category a fail.  I can’t offhand think of many first-rate Irish classical performers, can you?  James Galway?

4. Popular music: My Bloody Valentine, Loveless.  Certainly my favorite album post-1970s, and possibly my favorite of all time.  When the Irish do something well, they do it really really well.  Then there is Van Morrison, Them, Bono and U2, Rory Gallagher, Bob Geldof and The Boomtown Rats, The Pogues, The Cranberries, and Sinead O’Connor, among others.  I confess to having an inordinate weakness for Gilbert O’Sullivan.  Traditional Irish music would need a post of its own, but it has never commanded much of my attention.

5. Painter: Francis Bacon is the obvious and probably correct choice, but I am no longer excited to see his work.  I don’t find myself seeing new things in it.  Sean Scully wins runner-up.  This is a slightly weak category, at least relative to some of the others.

6. Political philosopher: Edmund Burke, who looks better all the time, I am sorry to say.

7. Philosopher: Bishop Berkeley.  He is also interesting on monetary theory, anticipating some later ideas of Fischer Black on money as an abstract unit of account.

8. Classical economist: Mountifort Longfield and Isaac Butt both had better understandings of supply and demand and marginalism, before the marginal revolution, than almost any other economists except for a few of the French.

9. Theologian: C.S. Lewis, you could list him under fiction as well.  Here is a debate over whether he is British or Irish.  Laura Miller’s The Magician’s Book: A Skeptic’s Adventures in Narnia covers Lewis, one of my favorite books from the last decade.

10. Silicon Valley entrepreneur: Patrick Collison (duh), of Stripe and Atlas, here is his superb podcast with Ezra Klein.  Here is further information on the pathbreaking Stripe Atlas project.

11. Movie: There are plenty I don’t like so much, such as My Left Foot, The Wind That Shakes the Barley, Waking Ned, and The Commitments.  Most people consider those pretty good.  I think I’ll opt for The Crying Game and also In the Name of the Father.

12: Movie, set in: Other than the movies listed above, there is Odd Man Out (quite good), The Quiet Man, and The Secret of Roan Inish, but my clear first choice is the still-underrated masterpiece Barry Lyndon.

The bottom line: The strengths are quite amazing, and that’s without adjusting for population.

Late last month, famine was declared in two counties of the civil-war torn East African country of South Sudan. With 100,000 people at risk for dying of starvation in that area alone and millions more on the brink of crisis-level food shortages throughout the country, South Sudanese President Salva Kiir promised “unimpeded access” to humanitarian aid organizations working there.

A few days later the South Sudanese government hiked the fee for work permits for foreign aid workers from $100 to $10,000.

Here is further information, via Tom Murphy.

Net revenues from border adjustment taxes and subsidies will be positive so long as the United States runs a trade deficit. But if foreign debt is not to explode, trade deficits must eventually be offset by trade surpluses in the future. Net revenues that are positive today will eventually have to turn negative. Indeed, any positive net revenues today must be offset by an equal discounted value of negative net revenues in the future.

Suppose that higher border adjustment revenues today are used to decrease other taxes—corporate tax cuts for example—leaving the budget unaffected in the short run. As trade deficits eventually turn into trade surpluses, and thus border adjustment net revenues turn from positive to negative, the other tax cuts it initially financed will still be on the books. Sooner or later, taxes will have to increase, or spending will have to be reduced, to compensate for the shortfall. Just as when the government issues debt, taxpayers get a break now, but they will have to pay off the cost of the debt in the future.

What if the exchange rate does not adjust fully? The story becomes more complicated, but the bottom line is the same. Depending on the demand and supply elasticities of imports and exports, the incidence of taxes will fall partly on US consumers, partly on foreigner producers; the incidence of subsidies will fall partly on US exporters, partly on foreign consumers. In fact, with incomplete exchange rate adjustment, it is plausible that in the short run US consumers will pay more than 100 percent of the net taxes raised—effectively financing a transfer to foreign producers as well. In any case, as trade deficits turn to surpluses, the roles will be inverted. What foreigners paid, they will get back. What US taxpayers received, they will have to give back. In the end, just as for debt finance, whatever tax breaks they got now, they will have to pay for later. On net, again, foreigners will not contribute.

Here is more of interest, self-recommending…

He’s impressed by fracking: “What’s very striking is that on some level I think fracking represents a bigger economic form of progress for our society as a whole than the innovation in Silicon Valley.”

Globalization and Trump: The onstage discussion was light on Trump, but Thiel riffed on what he sees as the political forces at play today. “I think the tide on globalization is just going out in a pretty big way,” he said, noting trends on immigration policy, trade, and more. Asked if Trump’s election was partly a rebellion against globalization, Thiel said he’s “definitely inclined to think of it in those terms.”

A “bull market in politics” has arrived: Thiel credited a colleague for having that view, and said he’s come around to the idea.

  • “I am not sure this is a good thing, but it is a fact that maybe politics is becoming more important and more intense, the range of outcomes is becoming greater.”

The link has a bit more content.

That is the title of a recent paper in the Journal of Development Economics (NBER version here, 2013 ungated version here), and although the piece does not feel dramatic at first it is one of my favorite articles of the year.  It pins down some critical features of economic underdevelopment better than any study I know.  The subtitle, by the way, is “The Successes and Limitations of Bureaucratic Reform in India,” the authors are Iqbal Dhaliwal and Rema Hanna, and the work is set in rural Karnataka.

It is not easy to excerpt from, so I will summarize the narrative:

1. Using biometric technology — thumbprints — to monitor absenteeism induces staff attendance for public health workers to rise by almost 15 percent.

2. That in turn leads to a reduction in low-birth weight babies.

3. Yet the government proved not so interested in monitoring attendance on a more regular basis, not even to enforce their pre-existing human resource policies.  Potential penalties against late or absent doctors were not, for the most part, enforced.

4. Following the implementation of monitoring, the doctors showed the least improvement in attendance of all the workers, in fact virtually no improvement.  The entire positive effect came from nurses, lab technicians, and lower level staff.

5. The government was reluctant to continue the monitoring because it feared staff attrition and staff discord, especially from the doctors.  There is growing private sector demand for doctors, and many doctors are considering leaving these clinics for superior pay elsewhere, and perhaps also superior location.  Therefore the doctors are given, de facto, a very lenient absence and lateness policy, in lieu of a pay hike.

6. It is already the case that many of these doctors moonlight on the side, or have separate private practices, and that spending more time at the public clinic is not their major priority.

7. It is not easy for the underfunded local government to pay these doctors more, and thus a high level of lateness and absenteeism continues.  I wonder also what would be the morale costs on the non-doctors, if the monitoring were to be continued to be enforced in this differential manner over a longer period of time.

John Komlos has a new paper on this topic, here is the abstract:

Schumpeter’s concept of creative destruction as the engine of capitalist development is well-known. However, that the destructive part of creative destruction is a social and economic cost and therefore biases our estimate of the impact of the innovation on GDP is hardly acknowledged, with the notable exception of Witt (1996.“Innovations, Externalities and the Problem of Economic Progress.” Public Choice 89:113 –30). Admittedly, during the First and Second Industrial Revolutions the magnitude of the destructive component of innovation was no doubt small compared to the net value added to GDP. However, we conjecture that recently the destructive component of innovations has increased relative to the size of the creative component as the new technologies are often creating products which are close substitutes for the ones they replace whose value depreciates substantially in the process of destruction. Consequently, the contribution of recent innovations to GDP is likely upwardly biased. This note calls for further research in innovation economics in order to measure and decompose the effects of innovations into their creative and destructive components in order to provide improved estimates of their contribution to GDP and to employment.

Think of Uber being a relatively close substitute for taxicabs, for instance.  Speculative, as they say, and the paper does not in fact actually demonstrate these conclusions, but at least we should be asking such questions more often.

That is the focus of my latest Bloomberg column, here is one bit from it:

Under one somewhat-neglected feature of [one version of] the tax, companies could no longer deduct advertising, interest, rent and employee benefit costs from their bills for tax due. This is a recipe for major tax dodges and the further politicization of government-business relations.

To think through these problems, note that under circulating versions of the tax reform a company still can deduct its asset acquisition and inventory costs. So, to cite one potential problem, if a company acquires a building it can deduct that expense, but not if it rents a similar building. The result is that the rental market would suffer badly. Some companies would put up their own structures, but others might engage in temporary “repurchase” agreements so they are owning their space (“asset acquisition”) rather than renting it. That’s just one example of the big loopholes the new tax code could create.

There is no single canonical account of how a border adjustment tax would work, so maybe that loophole won’t apply to your preferred version. (Here is a 2016 outline, but expect further changes and details; this KPMG document is useful on options.) But the general point is this: By creating such a sharp distinction between deductible and nondeductible business expenses, the opportunities for tax arbitrage and tax-code lobbying are huge. The suspicion is that most business expenditures could, one way or another, be converted into forms that allow for full and immediate expensing.

How about a version of the tax that allows for deductibility of newly constructed but not purchased buildings? Well, that would encourage overinvestment in new construction. You can also imagine building purchases accompanied by overbilled site modifications (with some of that money being returned in another associated transaction), so the refitted structure could count as new construction.

As I say in the piece, please do note that many people have their particular favored versions of the tax, sometimes designed to avoid various specific problems that are raised.  But I don’t think any version of the tax will avoid these problems in general.  Full and immediate expensing is a potent lure, and it will attract a great of gamesmanship.

Here is the second video based on The Complacent Class:

 
Here is the first video and a way to sign up for the whole series.

Adjusting for changes in population, Nevada’s real output is a staggering 21 per cent below its 2006 peak, and more than 10 per cent below its level from two decades ago — a performance only comparable to Greece

That is from Matthew C. Klein at FTAlphaville.

Theft! A History of Music

by on March 6, 2017 at 7:13 am in Books, Economics, Law | Permalink

Theft! A History of Music is a graphic novel by James Boyle, Jennifer Jenkins and the late Keith Aoki. It’s about musical borrowing and the laws that have attempted to regulate musical borrowing and inter-mixing over the past 2000 years.

The history in this book runs from Plato to Blurred Lines and beyond. You will read about the Holy Roman Empire’s attempts to standardize religious music with the first great musical technology (notation) and the inevitable backfire of that attempt. You will read about troubadours and church composers, swapping tunes (and remarkably profane lyrics), changing both religion and music in the process. You will see diatribes against jazz for corrupting musical culture, against rock and roll for breaching the color-line. You will learn about the lawsuits that, surprisingly, shaped rap. You will read the story of some of music’s iconoclasts—from Handel and Beethoven to Robert Johnson, Chuck Berry, Little Richard, Ray Charles, the British Invasion and Public Enemy.

Theft! is informative and quite fun. I enjoyed it a lot. You can buy a paperback or get a free download. Here’s one page:
Theft_173

Should we tax robots?

by on March 6, 2017 at 12:23 am in Economics, Web/Tech | Permalink

That idea was suggested recently by Bill Gates, though I think you can debate with what degree of literalness.  It’s worth a ponder in any case, and here is a recent Noah Smith column on the idea, and here is Summers in the FT, WaPo link here.  And here is Izabella Kaminska.

Put aside the revenue-raising issue (which will require some taxes on capital, most likely, including on robots): if we have taken in optimal revenue, is there a separate and additional argument for an additional robot tax?  In this context, I would consider “robots” to be capital that is especially substitutable for human labor.

Presumably the claim is that there is either a distributional or an “externalities from a happy human being” reason to slow the rate at which capital is substituted for labor.  But if we accept that assumption, should we tax robots or subsidize wage labor?

One reason not to tax the robots is that employers might substitute away from robots and toward natural resources rather than toward domestic human labor.  Maybe that doesn’t sound intuitive, but think of paying the energy costs to outsource to another nation and transport the outputs back home.

But the main issue is probably one of incidence.  A general problem with a wage subsidy is that sometimes much of its value its captured by employers.  For instance if the subsidy takes an EITC form, employers could pay less to their workers, but perhaps many eager workers still would seek the job to capture the somewhat higher net total wage, namely the employer portion plus the benefit.  If enough workers are keen to get the pay, employers can claw back much of the EITC boost and still get the work force they need.

Now consider the incidence of a tax on robots.  If the elasticity of the demand for robots is high, there will be a big shift away from robots and toward labor (and land and other resources).  It is at least possible that workers capture more of the gains this way than from the direct subsidy to their wages.  On the downside, the employer fares less well under this scheme.

So it depends on how labor and robot elasticities relate to each other.  I don’t know what relationship between the parameter values is likely, but typically in these scenarios just about any result is possible.  The robot tax would seem to do best when the elasticity of demand for robots is high, but the corresponding elasticity of demand for labor is low (and differentials in supply elasticities do not offset this).  As robots and labor become more substitutable, that difference in demand elasticities is likely to diminish.  So if you are going to do this, maybe it is necessary to do it soon, precisely when it does not seem needed.

Your call, but that is the basic set-up of the problem.

Maersk had found that a single container could require stamps and approvals from as many as 30 people, including customs, tax officials and health authorities.

While the containers themselves can be loaded on a ship in a matter of minutes, a container can be held up in port for days because a piece of paper goes missing, while the goods inside spoil. The cost of moving and keeping track of all this paperwork often equals the cost of physically moving the container around the world.

That is by Nathaniel Popper and Steve Lohr, mostly about blockchains, via Ángel Cabrera.