I sometimes say it is coming first to Israel and Singapore (and England?), but the Kiwis are a different case.  Eric Crampton quotes from an NZ Ministry report:

Overall, there is no evidence of any sustained rise or fall in inequality in the last two decades. The level of household disposable income inequality in New Zealand is a little above the OECD median. The share of total income received by the top 1% of individuals is at the low end of the OECD rankings.

You also will note that New Zealand has been a steady under-performer in terms of economic growth, despite a lot of good policy decisions.  This has helped keep income inequality down.

On this note, the paperback of Average is Over is coming out August 26th, you can order your copy here.

How do trends and cycles interact?

by on August 25, 2014 at 1:04 am in Economics | Permalink

In a piece I already have linked to, Binyamin Appelbaum makes a point in passing that I think deserves further comment:

The new paper, like others of its genre, basically requires belief in a big coincidence: that a short-term catastrophe happened to coincide with the intensification of long-term trends — that the economy crashed at the moment that it was already beginning a gradual descent.

I view this somewhat differently.  Very often trends accumulate, often without much notice, and then a cyclical event causes that trend to explode into full view.  Such a coincidence of cycle and trend is very often no accident and in fact the two are closely related.

Let’s say, as seems to be the case, that wages stagnated, labor market mobility slowed down, and non-outsourcing productivity was slow during 2000-2007 (or maybe longer).  Those are all long-term economic trends and they are all bad news.

During 2000-2007 most Americans acted as if were are on a good trend line when in fact they were on a less favorable trend line.  This influenced spending decisions, borrowing decisions, real estate decisions, and so on.  People overextended themselves and they also created unsustainable bubbles.  Sooner or later the debt cannot be rolled over, the bubbles pop, the crash ensues, AD falls, and so on.  This often takes the form of a discrete cyclical event, as indeed it did in 2008.

One point — still neglected in much of today’s macroeconomic discourse — is that the mis-estimated trend was a major factor behind the cyclical event.  But there is yet more to say about this interrelationship between cycle and trend.

The arrival of the cyclical event, in due time, makes the negative underlying trend more visible.  At first people blame everything on the cycle/crash, but a look at the slow recovery, combined with a study of pre-crash economic problems, shows more has been going on.

The cyclical event itself places greater stress on labor markets, on firm liquidity and thus on R&D, on perceived stocks of wealth, and so on.  As individuals observe the reaction of the economy to this added stress, they start seeing just how wide-ranging and deep the previously existing structural problems have been.

Those observations, and the accompanying economic responses, make the problems worse.  Forecasts become more pessimistic, investment declines, firms will be less keen to commit to workers who are less than the “sure thing,” and so on.  Sometimes this is moving along curves, other times there are shifts in multiple equilibria (“is Greece a European country or a Balkans country?”), toss in some herd behavior too.  In any case these changes are ill-served by the terminology of cyclical vs. structural.  They are cyclical and structural in an intertwined fashion.  And of course this all leads aggregate demand to fall all the more.

I am reminded of the literature in finance that shows how apparently small shifts in information can lead to big movements in market prices.  The initial small shift illuminates the reaction functions of other market traders, which illuminates depth of sentiment, which in turn causes a revision of expectations and thus prices.  For instance the market as a whole may learn from a small shift in orders that core traders were never so optimistic in the first place.

It’s also worth visiting the literature on how sand piles can collapse rather suddenly (“self-organized criticality” is one term used in the economics literature).  That too is a cyclical event yet based on underlying structural problems.

If you hear someone say “if this were structural unemployment, wages would be rising a lot right now,” that is a sign they have not thought through this issue deeply enough.

If you hear someone argue or rebut “so what, did everyone get lazy or stupid in 2009?”, that too is a sign only one dimension of the problem is being considered.

In macroeconomic debate, most one-line zingers are not very good.

…the NFL has reportedly requested its top three choices for the 2015 Super Bowl Halftime Show — Rihanna, Katy Perry, and Coldplay — to pay the league for the privilege of performing at halftime.

There is more here, and here and here.  For the pointers I thank F.E. Guerra-Pujol and Sheel Mohnot.

Sunday assorted links

by on August 24, 2014 at 12:00 pm in Uncategorized | Permalink

1. Infovores.

2. The spiciest noodles in the world?

3. Unlike at Hinds, MRUniversity is open to goats too.

4. New David Autor paper on information technology and job polarization (pdf).

5. I agree with Greg Mankiw about tax reform.

6. The North Pond hermit (good story).

My favorite things Bolivia

by on August 24, 2014 at 3:46 am in Travel | Permalink

Yes, violinist Jaime Laredo is from Cochabamba, but that does not sum up what is special about Bolivia.  I’ve been to maybe ninety countries, and often I think Bolivia is the most exotic and wild of them all.  For a simple contrast, so many aspects of Yemen have fed into streams we are familiar with, and Yemeni food is instantly recognizable, even if you have never been to the Arabian peninsula.

The main strands of Bolivian indigenous life — which I estimate to represent sixty percent of the country or more — have barely touched America or Europe.  It is all strange.  It is (mostly) deeply beautiful, like visiting another planet.  The sky is intense, and the potatoes and corn taste much stronger than what we we Americans are used to.  “I went there to eat a purple potato” is a coherent and indeed a wise sentence.  Llama jerky is a major dish.

There is a three-toed sloth in the Santa Cruz parkPink flamingos and lithium on the other side of the country.  La Paz is set in a bowl of sorts where you can look either up or down and see homes carved into mountains.  The altitude (in some parts of the country) never ceases to feel like a strain, and the Andes are the world’s largest mountain range.  Some of the indigenous politicians have run against the Western Enlightenment.  On the Altiplano I encountered some of the most miserable-looking people.  The beautiful women have an intensity and a heartiness.  The bowler hat remains in style.

Most of the hotels aren’t very good.  The country has been landlocked for some time, and has lost territory in three different wars.  There are over thirty official languages and it is the number four country in the world for number of butterfly species.  You will not find a higher percentage of expressionless, stone-faced petty merchants.

Due to hydrocarbons, the country is growing at over six percent a year.  My favorite movie set in Bolivia is Even the Rain, a Spanish production I believe.

I strongly recommend a visit to Bolivia.

But as for Santa Cruz, well…that is something altogether different.

The actual title is Thomas Aquinas’s Summa theologiae: A Biography.  I enjoyed this book and learned a good deal from it, here is one excerpt:

…understanding the Summa as based on the cycle of emanation and return helps tie much of Thomas’s theological work together, from the Writing on the Sentences to the Summa.  In his earliest synthesis Thomas had already referred to the coming forth from and return of all things to God as a key theological principle…

For Thomas this circular motion reveals god’s sapiential ordering on the most universal level.  To think of the exitus-reditus model as primarily philosophical and Neoplatonic, as some have argued, is a modern view that Thomas would not have shared.  What else does scripture teach but how all things were created by God and are directed back to him as their final goal?

You can order the book here.

Saturday assorted links

by on August 23, 2014 at 5:48 pm in Uncategorized | Permalink

1. Questions that are rarely asked: Do people really use hotel irons to cook food?

2. Using Twitter data to estimate unemployment.

3. Why does it take so long to wire money in the United States?

4. Literary solutions to the economy, a forthcoming BBC radio show.

5. How an extreme athlete discovered her own genetic flaw.

Not just an economic slowdown, but actual, ongoing consistent negative economic growth.  In my latest NYT column at The Upshot, I argue for some economies it may happen that living standards fall over the course of a few decades:

In 1750, India accounted for one-quarter of the world’s manufacturing output, but by 1900 that was down to 2 percent. The West became more productive as a result of the Industrial Revolution, and India lost much of its leading export sector, textiles. While the data is fragmentary, the best estimates show that India’s living standards declined through the middle of the 19th century and that its economy retrogressed, even as it borrowed some technological improvements from the West. India just didn’t do enough to move toward production on a larger scale or with better machines.

This story of India’s loss to foreign competition is documented in “Deindustrialization in 18th and 19th Century India,” a paper by David Clingingsmith, an economics professor at Case Western Reserve University, and Jeffrey G. Williamson, an emeritus professor of economics at Harvard.

Economists are accustomed to emphasizing the benefits of international trade, and these arguments are largely correct. But in India, internal regulations and underdevelopment, combined with British colonial depredations, prevented Indian resources from being redeployed productively. The lesson is that a sufficiently large international trade shock can lead to decades of economic decline in a major economy, especially if that economy isn’t geared to mounting a flexible response.

As I explain in the piece, the most likely economies to undergo sustained negative growth today are Italy, France, Croatia, Greece, Portugal, and possibly Taiwan.  We should be more optimistic about the United States, but still a similar logic is applying to some parts of our middle class.

Here is my concluding paragraph:

India’s economy started to reindustrialize in the late 19th century, but growth remained subpar until the 1990s — a truly long recovery lag. This may sound strange to say, but when it comes to some parts of the Western world, the Great Depression may offer the cheerier analogy.

Read the whole thing.

From The Growth Economics Blog:

There’s a recent working paper by Alexandra de Pleijt and Jacob Weisdorf that looks at skill composition of the English workforce from 1550 through 1850. They do this by looking at the occupational titles recorded in English parish records over that period, and code each observed worker by the skill associated with their occupation. They use the standardized Dictionary of Occupational Titles to infer the skill level for any given occupation. For example, a wright is a high-skilled manual laborer, a tailor is medium-skilled, while a weaver is a low-skilled manual laborer.

The big upshot to their paper is that there was substantial de-skilling over this period, driven mainly by a shift in the composition of manual laborers. In 1550, only about 25% of all manual laborers are unskilled (think ditch-diggers), while 75% are either low- or medium-skilled (weavers or tailors). However, over time there is a distinct growth in the the unskilled as a fraction of manual laborers, reaching 45% by 1850, while the low- and medium-skilled fall to 55% in the same period. You can see in their figure 10 that this shift really starts to take place by 1650, while before the traditional start of the Industrial Revolution.

Looking at more refined measures, de Pleijt and Weisdorf find that the fraction of workers classified as “high-quality workmen” – carpenters, joiners, wrights, turners – rose only from 3.9% to 4.9% of the workforce between 1550 and 1850.

Adjustment to major technological shocks takes a long time…

In Beijing, I met Benjamin Liebman, a professor at Columbia Law School, who has published a study on “malpractice mobs” in China. He told me that protests consistently extract more money from hospitals than legal proceedings do. Family members can even hire professional protesters. One report in Shenzhen mentioned an average price of fifty yuan a day for the service of a protester. The radiologist in Shanghai told me, “If your mother dies in the hospital, there will be an agency that comes to you and says, ‘We can help you. We can have twenty guys who can come to the hospital, blackmail them, and share fifty per cent of the profits.’ They’re very professional.”

The article, by Christopher Beam in The New Yorker, is interesting throughout.

Here is a very good piece by Binyamin Appelbaum, focusing on the research of Davis and Haltiwanger, here is one excerpt:

Employment losses during the Great Recession may have had more to do with factors like the rise of Walmart than with the recession itself, two economists say in a new academic paper.

The paper, presented Friday morning at the annual gathering of economists and central bankers at Jackson Hole, Wyo., argues that the share of Americans with jobs has declined because the labor market has stagnated in recent decades — fewer people losing or leaving jobs, fewer people landing new ones. This dearth of creative destruction, the authors argue, is the result of long-term trends including a slowdown in small business creation and the rise of occupational licensing.

“These results,” wrote the economists Stephen J. Davis, of the University of Chicago, and John Haltiwanger, of the University of Maryland, “suggest the U.S. economy faced serious impediments to high employment rates well before the Great Recession, and that sustained high employment is unlikely to return without restoring labor market fluidity.”

Their findings contribute to the growing genre of papers that purport to show that the weakness of the American economy is caused largely by problems that predate the recession — and that the Federal Reserve can’t remedy them with low interest rates.

Read the whole thing.

*Gaza: A History*

by on August 22, 2014 at 12:27 pm in Books, History | Permalink

That is the new book by Jean-Pierre Filiu, Oxford University Press.  It would not have come right now unless I were supposed to read it on the plane, so I will.

Assorted links

by on August 22, 2014 at 11:30 am in Uncategorized | Permalink

1. Exit interview with Eric Crampton.

2. How to be polite (good piece)

3. Reihan Salam interviews Lane Kenworthy.

4. Are American housing problems structural?

5. SWAT teams have their own lobbying organization.

6. Moose sex corridor expands with land donation.

U.S.-based economist Arvind Subramanian is poised to be named as chief economic adviser to Prime Minister Narendra Modi’s government, two sources at the finance ministry said on Friday.

There is more here, via David Wessel.  Here are previous MR posts on Subramanian.

How much does poverty drive crime?

by on August 22, 2014 at 7:25 am in Economics, Education, Law | Permalink

Maybe less than you thought, at least after adjusting for other variables.  The Economist reports:

In Sweden the age of criminal responsibility is 15, so Mr Sariaslan tracked his subjects from the dates of their 15th birthdays onwards, for an average of three-and-a-half years. He found, to no one’s surprise, that teenagers who had grown up in families whose earnings were among the bottom fifth were seven times more likely to be convicted of violent crimes, and twice as likely to be convicted of drug offences, as those whose family incomes were in the top fifth.

What did surprise him was that when he looked at families which had started poor and got richer, the younger children—those born into relative affluence—were just as likely to misbehave when they were teenagers as their elder siblings had been. Family income was not, per se, the determining factor.

That suggests two, not mutually exclusive, possibilities. One is that a family’s culture, once established, is “sticky”—that you can, to put it crudely, take the kid out of the neighbourhood, but not the neighbourhood out of the kid. Given, for example, children’s propensity to emulate elder siblings whom they admire, that sounds perfectly plausible. The other possibility is that genes which predispose to criminal behaviour (several studies suggest such genes exist) are more common at the bottom of society than at the top, perhaps because the lack of impulse-control they engender also tends to reduce someone’s earning capacity.

The original research, by Amir Sariaslan, Henrik Larsson, Brian D’Onofrio, Niklas Långström and Paul Lichtenstein is here, here is how the authors report the conclusion:

There were no associations between childhood family income and subsequent violent criminality and substance misuse once we had adjusted for unobserved familial risk factors.