3. Yuval Levin has a good analysis of the sequester redo.
3. Yuval Levin has a good analysis of the sequester redo.
I had not considered this point before:
Basel III and related regulation generally work against building scale. Larger capital charges based on size, leverage and complexity, and a bias toward ringfenced subsidiaries, may make for a safer global banking system, but applied across euro area countries, and in the absence of a strong banking union, they constitute a recipe for less efficiency and greater fragmentation.
It is an excellent piece by Gene Frieda (FT gated), here is more, on the consequences of an imperfect banking union:
Banks will continue to hold primarily national assets and their size will be constrained by their resident deposit bases. Any reconvergence of funding costs comes not as a function of greater confidence, but from the forced reimposition of national financing constraints.
Loan pricing, on the other hand, will remain highly differentiated amid elevated periphery default risk, as highly indebted economies will be unable to grow their way out of a debt trap. A complete banking union would remove these national financing constraints and promote a greater flow of credit to viable entities.
This will lead to strong deflationary pressures and indeed you will note that private loan growth in the eurozone remains negative, a sign the crisis is not over. And then there is this:
Finally, given the lack of common fiscal backstops for the banking sector, the ECB’s independence is compromised. Indeed, without a credible backstop, supervisory responsibilities cannot be separated, giving rise to conflicts between monetary policy and financial stability objectives.
I would add that a full and perfect banking union probably is politically impossible, not just by a small amount but by a long mile. Berlin/Brussels cannot guarantee a country’s banks without also guaranteeing the sovereign as well, either directly or indirectly (in the limiting case, imagine that sovereign nationalizing a bank to get the guarantee explicitly). I just don’t see that in the cards.
That is the new and very good David Brooks column about Average is Over. Here is one excerpt:
So our challenge for the day is to think of exactly which mental abilities complement mechanized intelligence. Off the top of my head, I can think of a few mental types that will probably thrive in the years ahead.
…Synthesizers. The computerized world presents us with a surplus of information. The synthesizer has the capacity to surf through vast amounts of online data and crystallize a generalized pattern or story.
Humanizers. People evolved to relate to people. Humanizers take the interplay between man and machine and make it feel more natural. Steve Jobs did this by making each Apple product feel like nontechnological artifact. Someday a genius is going to take customer service phone trees and make them more human. Someday a retail genius is going to figure out where customers probably want automated checkout (the drugstore) and where they want the longer human interaction (the grocery store).
…Motivators. Millions of people begin online courses, but very few actually finish them. I suspect that’s because most students are not motivated to impress a computer the way they may be motivated to impress a human professor. Managers who can motivate supreme effort in a machine-dominated environment are going to be valuable.
Do read the whole thing.
2. Faces in things (recommended).
5. Raising the minimum wage doesn’t really fight poverty. And Hester Peirce on alternatives to the Volcker rule.
Inequality in Israel has been rising rapidly, but it is neither from trade with China nor because of robots. In part more of the Israeli economy has shifted — for technological reasons — into inequality-inducing sectors, such as information technology. The greater size and openness of the Israeli economy also mean that preexisting educational disparities, many of them rooted in religious and ethnic differences, now map into greater income differentials. For instance a growing role for exports in the economy boosts income inequality because not all workers have access to the international customers, whether directly or indirectly.
Many of the ultra-Orthodox here have characteristics of “threshold earners,” as I have discussed that concept in the past. Their wages have stagnated in real terms or even fallen over the last decade.
Russian-born Israelis have enjoyed strong income gains, whereas the non-Haredi Israeli-born middle class Jews have lost a small amount of ground.
The price of housing remains inefficiently high.
I sometimes say that Israel is where “Average is Over” happens first:
“…the income gap between the 90th percentile and the median worker in Israel is the highest of all the developed countries, as is the income gap between the median (50th percentile) and the 10th percentile. And if that is not enough, the income gap between the 75th percentile and the 25th percentile, in other words the income gap within the middle class − between the upper and lower middle class − is also the highest in the developed world.” The link is here.
The bottom decile actually has done quite well in terms of rates of change, but the 6th through 8th deciles have done especially poorly (same link). That source serves up the intriguing hypothesis that the disappearance of middle class-earning middlemen in the Israeli economy is due to the disintermediation of the internet, although without citing any data. In any case, it is the non-substitutable, non-automatable, manual labor jobs which have seen rising pay at the very bottom.
(As an aside, a number of recent studies of rising income inequality caricature the technology hypothesis in a variety of non-useful ways, and thus (incorrectly) reject it. I hope to consider those arguments in more detail, in the meantime I will note that the Israel case study is a useful corrective to those views, by showing the broad spectra of ways in which technology influences income distribution. It’s not just or even mainly about “robots.”)
The Israeli economy has a high degree of economic and financial concentration. How much that problem would be alleviated if Israel could have normal trade and investment relations with its immediate neighbors?
A higher employment to population ratio would yield a good deal of low-hanging fruit. It is hard for me to judge across what time horizon that might happen here.
3. Who is Izabella Kaminska? I am not so interested in the Sumner back and forth, this is a fantastic piece of mini-biography.
4. Immigration authorities should not have access to so much medical information. Among other issues.
Here is the latest:
House and Senate negotiators were putting the finishing touches Sunday on what would be the first successful budget accord since 2011, when the battle over a soaring national debt first paralyzed Washington.
I have not seen enough detail to judge this emerging deal, but it seems it will reverse some of the initial cuts to discretionary spending from the sequester. You will recall my original take on the sequester, namely that it brought some much needed spending reductions (relative to baseline, they are mostly not actual spending reductions!), and that undesirable side effects could be handled by a subsequent Coasian bargain between the parties. (And here is me on the macro consequences of the sequester, and there was also plenty of monetary offset.) That appears to be exactly what is in progress. It is unlikely that bargain will approximate an ideal, but the pre-sequester spending decisions were not ideal either.
2. The top ten martial arts movies (but where is Drunken Master 2 on the list?).
From the comments, Stephen Williamson quotes/writes:
“…but it’s not nearly a close enough engagement with the evidence, which does pretty clearly show some short-run effects [from QE] are still operating, even if those effects are diminishing with time.”
I’d be curious to know what “evidence” it is that “clearly” shows this. My guess is you’re making this up.
In the first part he is quoting me, the “I’d be curious” paragraph is his own words. Overall, I would say here that the word “guess” is an accurate, albeit unfortunate description of how he is assessing the relevant evidence.
The background story is that Steve is arguing that QE should be deflationary rather than expansionary. What does the evidence say?
Here are Krishnamurthy and Vissing-Jorgensen on the United States (pdf):
…evidence from inflation swap rates and TIPS show that expected inflation increased due to both QE1 and QE2…
On Japan, here are Girardin and Moussa:
…we propose new empirical evidence supporting the ability of quantitative easing to provide stimulation to both output and prices.
Or try Joyce, Miles, Scott, and Vayanos, from The Economic Journal:
…a growing literature has begun to provide estimates of the macroeconomic effects. In one of the first studies of this nature, Baumeister and Benati (2010) estimate a time-varying parameter structural VAR to investigate the macroeconomic impact of lower long-term bond spreads during the 2007–09 recession period. In all, the countries they analyse – the US, Euro area, Japan and the UK – they find a compression in the long-term yield spread exerts a powerful effect on both output growth and inflation and their counterfactual simulations indicate that unconventional monetary policy actions in the US and UK averted significant risks both of deflation and of output collapses.
p.F285 of that paper discusses some other literature in detail, again indicating that QE increases the rate of price inflation. This piece is also useful for showing how empirical studies of QE provide decent evidence for asset segmentation and “preferred habitat” theories of bond markets (which responds to another of Steve’s points).
Or try Chung, et.al. from the Fed (since published in the JMCB):
…we find that the asset purchases have probably prevented the U.S. economy from falling into deflation.
This is all consistent with the observation from Scott Sumner:
For God’s sake the dollar fell by 6 cents against the euro on the day QE1 was announced! Does anyone seriously think a 6 cent depreciation in the dollar is deflationary?
There is plenty of (justified) debate as to how strong these effects are, and we all know the difficulties of doing proper empirical work in macroeconomics, and on top of that the time to produce research means these papers are not analyzing the very latest data. But I cannot find a serious — or for that matter non-serious — empirical study suggesting that QE is deflationary in its impact.
Addendum: David Glasner makes a very good point: “…if Williamson’s analysis is correct, the immediate once and for all changes should have been reflected in increased measured rates of inflation even though inflation expectations were falling. So it seems to me that the empirical fact of observed declines in the rate of inflation that motivates Williamson’s analysis turns out to be inconsistent with the implications of his analysis.”
3. White and Asian per capita incomes, in South Africa, are up significantly since Mandela’s election victory in 1994.
4. Innovation changes everything, by Seth Roberts.
6. The increasing inequality of art prices, and from the story I liked this line: “The beauty of art is that there is a lot of it.”
1. Ted Gioia’s 100 best albums of 2013. Ted understands the acoustical nature of music, and the creation of alternative sound worlds, better than any other music critic I read. Someone constructed a playlist from Ted’s picks here. And The Economist picks best books of the year. It is the best “best books” list so far this year.
5. The winning essays on the “Cowen vs. Mokyr” theme, I think they are very good.
6. Matt Zwolinski defends the guaranteed annual income idea.
A study (abstract available here) being released today suggests that it may be coming from a broader range of academic departments, but from a smaller number of elite scientists…
The analysis is based on a look at the top-ranked departments and the top scientists (as judged by output of citation-weighted papers) in evolutionary biology from 1980 through 2000. The research found two apparently contradictory trends:
- The share of citation-weighted publications produced by the top 20 percent of departments fell from approximately 75 percent to 60 percent.
- The share of papers produced by the top 20 percent of individual scientists increased from 70 percent to 80 percent.
In other words, the role of the individual star became more important at a time that the role of the star department (while still significant) fell.
There is not only more collaboration, but collaborations are taking place across a wider range of “quality” of institutions:
And the average distance in rank of institutional departments increased as well. In 1980, it was about 30 (meaning someone at an institution ranked 20th, say, was collaborating with someone at an institution ranked 50th). By 2005, the average rank gap was 55.
I see a common trend at mid-tier universities to care less about the research quality of the average faculty member, and care more about the quality and reputation of the stars, while “marketing” those stars more intensely than before. And there are many more good researchers at lower-tier institutions, but they may not command much of a premium in terms of pay or working conditions. Their specialized knowledge can make them very valuable as co-authors on the right project and so they end up in some high quality collaborations.
…the pace of actual trade settlement in renminbi has failed to keep up [with its role in finance]. It still accounts for just 0.8 per cent of the global total, a lower share than the Thai baht or the Swedish krona.
That is from the FT, via Amni Rusli. The recently reported fact that the renminbi is now the #2 trade financing currency seems to be simply measuring the carry trade, not the true ascendancy of the Chinese currency as a global reserve currency.