2. Ken Rogoff reviews Martin Wolf (pdf).
5. One take on the economics of the mafia (speculative?).
From 1973 to 1985 German inflation was most of the time over two percent a year, sometimes much over two percent. In 1973 it hit eight percent and in the early eighties it exceeded six percent a year. Source here (pdf), see p.6.
From 1951-1973, the Germans seemed happy with roughly the same inflation rate as what Americans had. Source here (pdf), see p.9, and also p.13, passim. In the early 1970s, the rate averaged almost seven percent a year for a few years (p.15). It is fine to note the role of oil shocks here, and in the earlier period Bretton Woods, but still Germans tolerated the higher inflation rates. They expected the alternatives would be worse and probably they were right.
The claim that the current German dislike of inflation dates back to unique memories of Weimar hyperinflation is dubious. Rightly or wrongly, today’s Germans associate high rates of inflation with wealth transfers away from Germany and toward other nations. More broadly, Germany is a more flexible country than outsiders often think, not always to the better of course.
So for once I can intelligently comment on a Marginal Revolution article. (I have a Ph.D. in applied plasma physics and fusion energy; I worked on the “conventional” fusion reactor design, the tokamak). Lockheed hasn’t released many details of their concept (at least, not enough details that it can actually be evaluated in technical detail), but it looks like it’s a combination of a magnetic mirror and a levitated dipole. The magnetic mirror was studied in detail in the 1960s and 1970s and didn’t work out (due to [detailed plasma physics reasons]) and the levitated dipole has a fundamental flaw as a power-producing reactor in that the superconducting magnets are inside the neutron shielding – neutrons destroy the magnets.
It’s tough as a scientist to be able to comment on things like this, because it’s “science by press release”, i.e. there’s a big media hype but the actual researchers don’t release enough technical details to actually evaluate it. One wants to remain cautiously optimistic, but with fusion in particular, we’ve been down this road many, many times. Thus I predict that the most likely outcome is that as they scale their device up, they’ll find that the confinement (a measure of how well the device holds a fusion plasma) unexpectedly drops off due to some different types of turbulence turning on at higher temperatures / higher pressures… and it will quietly go away.
I hope that I am proven wrong.
There are other interesting comments at the link and Kottke offers more.
So argues a new paper (pdf) by Ekrame Boubtane, Dramane Coulibaly, and Christophe Rault, the abstract is here:
This paper examines the causality relationship between immigration, unemployment and economic growth of the host country. We employ the panel Granger causality testing approach of Konya (2006) that is based on SUR systems and Wald tests with country specific bootstrap critical values. This approach allows to test for Granger-causality on each individual panel member separately by taking into account the contemporaneous correlation across countries. Using annual data over the 1980-2005 period for 22 OECD countries, we find that, only in Portugal, unemployment negatively causes immigration, while in any country, immigration does not cause unemployment. On the other hand, our results show that, in four countries (France, Iceland, Norway and the United Kingdom), growth positively causes immigration, whereas in any country, immigration does not cause growth.
This result reflects two broader lessons. First, at the margin the major benefits from migration are to the migrants. Second, again at the margin, most policy changes matter less than you think they will.
Hat tip goes to Ben Southwood.
2. E. Glen Weyl on the openness-equality tradeoff in global redistribution, or is there a case for the Gulf monarchies?
4. When is martial law a tourist attraction? (the culture that is Thailand)
7. Monetary policy with interest on reserves (speculative)
There is a new paper by Papageorge, Ronda, and Zheng, with a very interesting thesis, namely that preparing rowdies for better schooling results may not help their long-term prospects in life:
Prevailing research argues that childhood misbehavior in the classroom is bad for schooling and, presumably, bad overall. In contrast, we argue that childhood misbehavior reflects underlying traits that are potentially valuable in the labor market. We follow work from psychology and treat measured classroom misbehavior as reflecting two underlying non-cognitive traits. Next, we estimate a model of life-cycle decisions, allowing the impact of each of the two traits to vary by economic outcome. We show the first evidence that one of the traits capturing childhood misbehavior, discussed in psychological literature as the externalizing trait (and linked, for example, to aggression), does indeed reduce educational attainment, but also increases earnings. This finding highlights a broader point: non-cognition is not well summarized as a single underlying trait that is either good or bad per se. Using the estimated model, we assess competing pedagogical policies. For males, we find that policies aimed at eliminating the externalizing trait increase schooling attainment, but also reduce earnings. In comparison, policies that decrease the schooling penalty of the externalizing trait increase both schooling and earnings.
For the pointer I thank the excellent Kevin Lewis.
This is a fascinating Scott Alexander take on tribalism and how political issues are framed, starting with Ebola. As Robin Hanson would say, “politics isn’t about policy.” Here is the segment on how climate change issues might be marketed to the Right:
Global warming has already gotten inextricably tied up in the Blue Tribe narrative: Global warming proves that unrestrained capitalism is destroying the planet. Global warming disproportionately affects poor countries and minorities. Global warming could have been prevented with multilateral action, but we were too dumb to participate because of stupid American cowboy diplomacy. Global warming is an important cause that activists and NGOs should be lauded for highlighting. Global warming shows that Republicans are science denialists and probably all creationists. Two lousy sentences on “patriotism” aren’t going to break through that.
If I were in charge of convincing the Red Tribe to line up behind fighting global warming, here’s what I’d say:
In the 1950s, brave American scientists shunned by the climate establishment of the day discovered that the Earth was warming as a result of greenhouse gas emissions, leading to potentially devastating natural disasters that could destroy American agriculture and flood American cities. As a result, the country mobilized against the threat. Strong government action by the Bush administration outlawed the worst of these gases, and brilliant entrepreneurs were able to discover and manufacture new cleaner energy sources. As a result of these brave decisions, our emissions stabilized and are currently declining.
Unfortunately, even as we do our part, the authoritarian governments of Russia and China continue to industralize and militarize rapidly as part of their bid to challenge American supremacy. As a result, Communist China is now by far the world’s largest greenhouse gas producer, with the Russians close behind. Many analysts believe Putin secretly welcomes global warming as a way to gain access to frozen Siberian resources and weaken the more temperate United States at the same time. These countries blow off huge disgusting globs of toxic gas, which effortlessly cross American borders and disrupt the climate of the United States. Although we have asked them to stop several times, they refuse, perhaps egged on by major oil producers like Iran and Venezuela who have the most to gain by keeping the world dependent on the fossil fuels they produce and sell to prop up their dictatorships.
We need to take immediate action. While we cannot rule out the threat of military force, we should start by using our diplomatic muscle to push for firm action at top-level summits like the Kyoto Protocol. Second, we should fight back against the liberals who are trying to hold up this important work, from big government bureaucrats trying to regulate clean energy to celebrities accusing people who believe in global warming of being ‘racist’. Third, we need to continue working with American industries to set an example for the world by decreasing our own emissions in order to protect ourselves and our allies. Finally, we need to punish people and institutions who, instead of cleaning up their own carbon, try to parasitize off the rest of us and expect the federal government to do it for them.
Please join our brave men and women in uniform in pushing for an end to climate change now.
The piece is interesting throughout, hat tip goes to MR commentator Macrojams.
As of 2004, only 16.7% of the cost of Korean higher education was picked up by government, as opposed to an OECD average of about 77% (see this paper). That’s a relatively low level of subsidy. And yet Korea has one of the highest degree-granting rates in the world, the status of the school you go to is all-important, tiers of quality are fairly rigid, admission is closely linked to exam performance, and doubts have been raised about how much people actually learn in those schools. At least when it comes to surface phenomena, it appears Korean higher education has a lot to do with signaling.
In Germany they just made the universities completely free, and in the past they were quite cheap, which of course means subsidized. Germany also sends a relatively high percentage of its population to vocational training, where presumably the students learn some concrete skills. Could it be there is too much slacking in German universities (which I have interacted with twice, both as student and as professor) for attendance to serve as a very effective signal?
Can it be the case that a government subsidy, by limiting privately-perceived quality and returns, can lower private signaling costs? Should advocates of the signaling model therefore be more favorably inclined toward subsidies?
Here is a very good piece by The Mitrailleuse, though I do not agree with all of it. Here is the conclusion:
In summary, the libertarian discussion surrounding immigration shouldn’t be viewed as an all or nothing proposition and as Sanandaji has argued, it should take real world empirical patterns into account rather than assume away voting, the public sector, and social externalities. Libertarians should adopt the same skeptical economist’s view they apply to all other subjects when weighing questions about immigration to determine if we can actually affect the changes we would like to make.
It is perfectly acceptable for libertarians to disagree on such a complex subject and to hold opinions in favor of more marginal change. There are plenty of modest ways libertarians can criticize the existing immigration system without being in favor of open borders. These libertarians shouldn’t be vilified for their humility and prudence. There is no academic consensus on the subject and the issue is too complex and contextual for there to be a clear-cut libertarian position. The burden of proof lies on advocates of open borders to engage these criticisms.
For the pointer I thank Andrea Castillo.
1. HBO will be letting you watch their shows on-line without buying cable (the great unbundling).
4. “I don’t really know if they love me, or if they love my height.” (markets in everything, and do we need more Amazons?)
In the 1970s the US faced a serious shock to the supply of oil but the shortage of oil was caused by price controls. Today, California is facing a serious water drought but the shortage of water is caused by price controls, subsidies and the lack of water markets. In an excellent column, The Risks of Cheap Water, Eduardo Porter writes:
Water is far too cheap across most American cities and towns. But what’s worse is the way the United States quenches the thirst of farmers, who account for 80 percent of the nation’s water consumption and for whom water costs virtually nothing….
Farmers in California’s Imperial Irrigation District pay $20 per acre-foot, less than a tenth of what it can cost in San Diego….This kind of arrangement helps explain why about half the 60 million acres of irrigated land in the United States use flood irrigation, just flooding the fields with water, which is about as wasteful a method as there is.
Tyler and I discuss water subsidies in Modern Principles:
Farmers use the subsidized water to transform desert into prime agricultural
land. But turning a California desert into cropland makes about as much sense
as building greenhouses in Alaska! America already has plenty of land on which
cotton can be grown cheaply. Spending billions of dollars to dam rivers and
transport water hundreds of miles to grow a crop that can be grown more cheaply
in Georgia is a waste of resources, a deadweight loss. The water used to grow California cotton, for example, has much higher value producing silicon chips in
San Jose or as drinking water in Los Angeles than it does as irrigation water.
The waste of subsidized water is compounded by over 100 years of rent-seeking and a resulting legal morass that makes trading water extremely difficult (see Aquanomics for a good analysis). A water trading system is slowly taking form in the American West but the political transaction costs are immense. Australia, however, faced similar difficulties but has managed to develop a good water trading system and Chile has long had a robust market in water. Subsidies to farmers are politically sustainable when everyone has as much water as they want but when faced with continued shortages and an ever-intrusive water Stasi consumers and industry may eventually demand a more rational, less wasteful system based on incentives, markets and prices.
Victor Mallet writes:
Amid gloom over global economic growth and uncertain prospects for emerging markets, India is beginning to stand out as uniquely well-placed to gather the windfall benefits of an international slowdown.
Unlike Brazil, Russia or South Africa, India reaps immediate advantages for its terms of trade and its domestic budget from the fall in commodity prices triggered by renewed concerns about the world economy.
And unlike China, India will not suffer much from any decline in global demand for manufactured goods because its export sector is relatively small.
Commodities – mostly oil – account for more than half of India’s imports but only 9 per cent of its exports, mainly food. The current account deficit falls by about $1bn a year for every $1 decline in the price of a barrel of oil, and the reduced cost of fuel subsidies is also easing the burden on the budget.
Another benefit of weaker commodity prices is falling inflation, long the bane of the Indian economy.
I have supported the various QEs from the beginning, while seeing them as limited in their efficacy. At the time, and still, I feared deflationary pressures more than high inflation. Still, recently the question has arisen whether those QEs boosted the risk of high inflation. Ashok Rao looks at options data to pull out the best answer I have seen so far:
…did the risk of high inflation increase after the Fed engaged in QE2? (Note this establishes a correlation, not causation)…
And you see two very interesting trends: the probability of high inflation (that above 6%, which is the largest traded strike) sharply increased over the latter half of 2010 and early 2011, the time period over which the effects of QE2 were priced in. This is a general trend across all maturities. While the 3, 5, and 10 year option follow a similar path afterwards, the 1-year cap is much more volatile (largely because immediate sentiments are more acute). Still, you see the probability of high inflation pic up through 2012, as QE3 is expanded.
The takeaway message from this is hard to parse. This market doesn’t exist in the United States before 2008, and isn’t liquid till a bit after that, so it’s tough to compare this with normal times. While the sharp increase in the probability of high inflation would seem to corroborate the Hoover Institution letter, that wouldn’t mean much if it simply implied a return to normalcy. That’s just a question we’ll have to leave for a later day.
What about the probability of deflation? We’ll the interesting point is that for the three higher maturity options, the probability for high inflation and probability of deflation were increasing at the same time. This was a time of relatively anchored 5 year implied inflation, but the underlying dynamics were much more explosive, as can be seen in the above charts.
There are some very useful pictures in the post, and do note the variety of caveats which Ashok wisely (and characteristically) offers. He notes also that for the United States deflationary risk was never seen as very likely, but the QEs lowered that risk even further.
Here is Guy Norris:
Hidden away in the secret depths of the Skunk Works, aresearch team has been working quietly on a nuclear energy concept they believe has the potential to meet, if not eventually decrease, the world’s insatiable demand for power.
Dubbed the compact fusion reactor (CFR), the device is conceptually safer, cleaner and more powerful than much larger, current nuclear systems that rely on fission, the process of splitting atoms to release energy. Crucially, by being “compact,” Lockheed believes its scalable concept will also be small and practical enough for applications ranging from interplanetary spacecraft and commercial ships to city power stations. It may even revive the concept of large, nuclear-powered aircraft that virtually never require refueling—ideas of which were largely abandoned more than 50 years ago because of the dangers and complexities involved with nuclear fission reactors.
Here is another account. It is suggested that the reactor can fit on the back of a truck.
In response to such speculative reports I usually say: “If it’s true, why isn’t the price of oil down?” But these days the price of oil is down! I am not suggesting this is the reason, but at least I can no longer say “If it’s true, why isn’t the price of oil down?”. I have to say something else, so if this is true — which I cannot judge — there is no great stagnation (any more).
For the pointer I thank various MR readers.