This paper I had neglected, now it is time to remedy that.  The authors are Francisco J. Buera, Alexander Monge-Narajo, and Giorgio E. Primiceri, and it was published in Econometrica 2011:

We study the evolution of market-oriented policies over time and across countries. We consider a model in which own and neighbors’ past experiences influence policy choices through their effect on policymakers’ beliefs. We estimate the model using a large panel of countries and find that it fits a large fraction of the policy choices observed in the postwar data, including the slow adoption of liberal policies. Our model also predicts that there would be reversals to state intervention if nowadays the world was hit by a shock of the size of the Great Depression.

I don’t find that abstract so informative, this paper has a few main results:

1. Policymakers have priors about how good the market economy is, and they revise those views — and thus revise policy — as they observe their own growth results and those of their neighbors.  Success for market economies tends to breed greater reliance on markets.

2. A simple learning model predicts about 97% of the policy choices observed in the data.  Perhaps more importantly, the model accounts for more than 77% of the observed policy switches over a three-year time window.

3. Evolving beliefs — and not just the fixed demographic characteristics of countries — are critical for understanding policy decisions.

4. It was probably the growth collapse of the late 1970s for interventionist countries which led to a greater reliance on markets.

5. Adjustment toward better-performing policies is often quite slow.  In part this is because policymakers attribute the superior performance of other countries to heterogeneity rather than policy per se.

6. A global Great Depression would lead to a significant switch back to state interventionism.

7. If I understand the model correctly (and I am making a bit of a leap in interpretation here), it implies a Chinese growth slowdown will lead to greater state intervention in China, not greater liberalization.

The pointer to this paper is from Luis Garicano.

The best defense is sometimes…a good defense:

When Tyler Allen agreed to fork over $3 million in cash for a luxury condominium near Concordia, Kan., he wasn’t attracted by the indoor swimming pool, 17-seat movie theater, or hydroponic vegetable garden.

The real selling point of the 1,820-square-foot apartment: It will be buried 174 feet underground in a decommissioned missile silo sturdy enough to withstand a nuclear attack.

…The so-called Survival Condo complex boasts full and half-floor units that cost $1.5 million to $3 million each. The building can accommodate up to 75 people, and buyers include doctors, scientists and entrepreneurs, says developer Larry Hall.

The development is sold out.  I found this bit interesting:

…the complex has enough emergency food on hand to last for up to five years. There’s also a holding cell for unruly occupants.

The full story is here.

Assorted links

by on November 11, 2014 at 12:41 pm in Uncategorized | Permalink

1. Public transit use in the United States.

2. Women and pot legalization, redux.

3. What is new with ECB monetary policy?

4. When fish shout.

5. 9 Chinese marriage proposals.

6. Tim Geithner on Europe (caution: contains profanity).

I just clicked on pre-order

by on November 11, 2014 at 11:58 am in Books, History, The Arts | Permalink

Michael Hofmann, Where Have You Been?: Selected Essays.  Hofmann is a poet, translator, and essayist and in my view he is one of the finest (and most underrated) thinkers and writers of our day.  The book is due out December 2.  Here are previous MR mentions of Michael Hofmann.

African immigrant fact of the day

by on November 11, 2014 at 2:33 am in Data Source, Education | Permalink

That’s African immigrants to the United States, here is the fact:

In 2009, 41.7 percent of African-born adults age 25 and older had a bachelor’s degree or higher, compared to 28.1 percent of native-born adults and 26.8 percent of all foreign-born adults.

The source is here, further information about African immigrants is here.  They speak good English at very high rates — close to three-quarters — and they are more likely than other immigrants to be participating in the labor force.  And their importance is rising:

Though African immigrants represented only 0.4 percent of all foreign born in 1960, this share grew to 1.4 percent in 1980, to 1.8 percent in 1990, and to 2.8 percent in 2000…

There is also this:

People born in the U.S. were roughly four times as likely to report engaging in violent behavior than immigrants from Asia and Africa…

The future of immigration to America is likely African, some south Asian, and Chinese, with Latinos continuing to have a presence as well.

My favorite fiction of 2014

by on November 11, 2014 at 1:11 am in Books | Permalink

Overall I found this to be a weak year for fiction, with most of the highly anticipated books disappointing me, including those of Murakami, MacEwan, and David Mitchell.  Even the third volume of Knausgaard had extraordinary material through only about fifteen percent of the text; it was worth reading but most of it did not hold my attention very well.  Here are the ones I really liked, with the first two being my favorites:

1. Michel Faber, The Book of Strange New Things: A Novel.  A missionary visits space aliens, some of whom embrace the Bible eagerly, almost too eagerly.  Meanwhile he and his wife on earth write letters back and forth, showing they are the true aliens to each other.  This is the fiction book this year I enjoyed most, and the one I kept on wanting to pick up after I had put it down.  It is one of the most resonant portraits of space aliens I have read. yet without it being a science fiction novel.  Here is a useful NYT review, describing the book as “defiantly unclassifiable.”

2. Emmanuel Carrère, Limonov, The Outrageous Adventures of the Radical Soviet Poet Who Became a Bum in New York, A Sensation in France, and a Political Antihero in Russia.  This work blends fiction, non-fiction, and occasional social science (was a non-corrupt transformation of the Soviet Union really possible?, Gaidar ultimately decided it wasn’t), but in terms of the subjective experience of the reader it is most like a novel.  In addition to its literary quality, this is a deep book about why liberalism will never quite win over human nature.  Here is an interesting Julian Barnes review, although it is insufficiently appreciative.

3. Andrés Neuman, Talking to Ourselves, “Women who know what they want never want anything interesting.”

4. Javier Cercas, Outlaws: A Novel, my earlier remarks are here.

5. Richard Flanagan, The Narrow Road to the Deep North.  The Booker Prize winner, I thought this was at times too sentimental but an excellent story with some depth too.  It deals with an Australian in a prisoner of war camp in WWII and his escapades surrounding that time in his life.

I have yet to start the new Colm Tóibín novel, and I often like his work.  I read some of the new Sarah Waters, which struck me as a little too belabored for the time I had to give to it, but a quality work which will please her fans.  Cesar Aira wrote some more and he continues to be interesting.  I continued a reread of Moby Dick.

I am preparing my list of my favorite non-fiction books of the year and that should be ready before the Christmas shopping season starts.

In the meantime, what new fiction can you all recommend to me?

How love conquered (arranged) marriage

by on November 10, 2014 at 2:06 pm in Economics, History, Law | Permalink

Gabriela Rubio of UC Merced has a very interesting paper (pdf) on this topic:

Using a large number of sources, this paper documents the sharp and continuous decline of arranged marriages (AM) around the world during the past century, and describes the factors associated with this transition. To understand these patterns, I construct and empirically test a model of marital choices that assumes that AM serve as a form of informal insurance for parents and children, whereas other forms of marriage do not. In this model, children accepting the AM will have access to insurance but might give up higher family income by constraining their geographic and social mobility. Children in love marriages (LM) are not geographically/socially constrained, so they can look for the partner with higher labor market returns, and they can have access to better remunerated occupations. The model predicts that arranged marriages disappear when the net benefits of the insurance arrangement decrease relative to the (unconstrained) returns outside of the social network. Using consumption and income panel data from the Indonesia Family Life Survey (IFLS), I show that consumption of AM households does not vary with household income (while consumption of LM households does), consistent with the model’s assumption that AM provides insurance. I then empirically test the main predictions of the model. I use the introduction of the Green Revolution (GR) in Indonesia as a quasi-experiment. First, I show that the GR increased the returns to schooling and lowered the variance of agricultural income. Then, I use a difference-in-difference identification strategy to show that cohorts exposed to the GR experienced a faster decline in AM as predicted by the theoretical framework. Second, I show the existence of increasing divorce rates among couples with AM as their insurance gains vanish. Finally, using the exogenous variation of the GR, I find that couples having an AM and exposed to the program were more likely to divorce, consistent with the hypothesis of declining relative gains of AM.

MR referenced this paper in an addendum some while ago, Michael Clemens on Twitter recently reminded me of its existence.  One question of course is to what extent the arranged marriage is the only marriage form which provides these insurance benefits.  In other words, the arranged marriage might go away, but without the love marriage triumphing.  Perhaps one key change is that the parents are no longer the best producers of those financial insurance benefits, but that is distinct from the triumph of love.

Assorted links

by on November 10, 2014 at 12:09 pm in Uncategorized | Permalink

1. The economic consequences of sexual violence.

2. What to expect when you give your first job talk (I’d like to see John Cleese make the same video).

3. Richard Posner on rabbis and hard liquor.

4. 25 years after the fall of the Wall, unemployment in East vs. West Germany.

5. Larry Summers in the FT on how to deal with Ebola and other public health emergencies looking forward.

6. How much does a Michelin star still affect restaurant profits?

Catherine Weinberger of UCSB has a new paper out with that title in the Review of Economics and Statistics, and it echoes some of the themes I discussed in Average is Over.  Here is the abstract:

Data linking 1972 and 1992 adolescent skill endowments to adult outcomes reveal increasing complementarity between cognitive and social skills. In fact, previously noted growth in demand for cognitive skills affected only individuals with strong endowments of both social and cognitive skills. These findings are corroborated using Census and CPS data matched with Dictionary of Occupational Titles (DOT) job task measures; employment in and earnings premiums to occupations requiring high levels of both cognitive and social skill grew substantially compared with occupations that require only one or neither type of skill, and this emerging feature of the labor market has persisted into the new millennium.

You will find ungated copies here, and for the pointer I thank Ben Southwood.


by on November 10, 2014 at 2:23 am in Film | Permalink

A negative productivity shock hits the global economy, and various bad consequences ensue, including The Idea Trap.  Behavioral factors exacerbate the course of events.  Some degree of mean reversion ensues, to specify that degree would involve spoilers.  OLG models remain relevant, indeed more relevant than most others are willing to believe.  The rest is detail.

I am often skeptical of Christopher Nolan movies for lacking heart, but I enjoyed this one more than I expected to.  It would have been better, however, if no character had been allowed to articulate any propositions of physics.

My visit to Christie’s

by on November 10, 2014 at 12:57 am in Economics, The Arts | Permalink

Being briefly in New York City, I stopped in to visit the pre-auction viewing for the Contemporary Art sale at Christie’s.  I was stunned but not surprised at how many quality works were on sale, compared to the historical average, having visited the same event numerous times in the past.  Pre-crash, for instance, most of the sale was mediocre junk, albeit by big names, sold under the pretext that those names were worth owning for their own sake.  And there were plenty of recycled mediocre works from the 1980s, say the dross by painters such as Eric Fischl (who does have some very good works, though a minority of his overall ouevre).  This time I saw dozens of pieces which impressed me as good enough to be on display at first-rate museums, and those pieces filled even the “lesser” rooms upstairs rather than just the main showcase rooms.

The quality of the supply to me suggests that “finance” thinks trouble may be on the horizon.  Otherwise, why sell now?  Why not hold on to the best pieces, as collectors did in the old days, and wait for them to appreciate?  Somebody senses a market peak.  That said, finance is not always right, least of all about itself.

In any case the prices for the good works are indeed quite high.  A very good Robert Ryman “white painting” (yes, that means it is white, more or less only white, but the textures are very good) these days goes for $8-12 million, as does a good de Kooning from his Alzheimer’s period.  Those price estimates are without the buyer’s premia.  A Twombly chalkboard painting was estimated in the $35-55 million range and no one was even bothering to look at it.

Whether or not you think these prices are justifiable on aesthetic grounds, quality Old Masters are far cheaper and arguably more likely to hold their value.  For 200k (not long ago for 60-80k) you can buy a very good Delacroix painting and it is easier to hang and transport than many of these over-scaled contemporary works.  I interpret this price difference as a status gradient.  In the Old Masters field, you can’t hope to assemble a world class collection, as too many of the very best works are already in museums.  In other words, the Mona Lisa will always make your collection seem unimpressive.  You can buy excellent older works at excellent prices, but that alone doesn’t seem to count for much.  In the Contemporary field, if you are wealthy, you really can buy top works from say the top half dozen artists — or more — in that area.  Plus you can have the artists to your dinner parties, the works match how younger finance types like to decorate their apartments and homes, and their larger size makes them splashier purchases for a lot of museums.

Buyer’s hint: Those Alexander Calder sketches are underpriced at $40-60k, there is still time to bid on them.

Assorted links

by on November 9, 2014 at 2:39 pm in Uncategorized | Permalink

1. Claims about density, diversity, and voting behavior (do not reason from a static coalition!).

2. Bruno Latour has his own circus.

3. “Doing Business in Japan.”

4. Are the Republicans any better on state and local business regulation?

5. Will the LeBron James stimulus be good for the Cleveland economy?

6. Secession fever grows in Catalonia.

Paralelní Polis, which in Czech means “Parallel World,” is known mostly for being perhaps the world’s first bitcoin-only cafe. (Here’s my photo essay of what it’s like to buy coffee in the shop.) All transactions — from wages to point of sale — are processed virtually, using one of the most well-recognized cryptocurrencies. More broadly though, the recently-renovated space, which includes a co-working room and hacker space, was conceived as way to demonstrate on a micro level how an entirely decentralized society might function.

There is more here, and supposedly there is no hierarchy among the employees either.  The original pointer was from Ángel Cabrera.

That is the topic of my latest column for The Upshot at The New York Times, here is an excerpt:

Unfortunately, regions with rapidly growing populations, like Africa and South Asia, often have lower living standards. In our likely global future, these regions will have more people than they can comfortably support, while many countries in the West and in East Asia will have too few young people for prosperous economies.

As an economist, I see an obvious solution: Relatively underpopulated and highly developed countries could profitably take in young Africans and South Asians — and both sides would gain. Yet it’s far from clear that all nations that could benefit from this policy would entertain it, partly because of persistent racial and cultural bias. There is also the legitimate question of how quickly immigrants can adjust to new environments, especially if they are arriving with weak educational backgrounds as the job market demands ever-stronger skills.

…If you’re not convinced that a declining population is a problem, consider Japan. In terms of real gross domestic product per hour worked, Japan has continued to have good performance, but it has a fundamental problem: The working-age population has been declining since about 1997. And Japan’s overall population has been growing older, so with fewer workers supporting so many retirees, national savings will dwindle and resources will be diverted from urgent tasks like revitalizing companies and otherwise invigorating the economy. Japan has already gone from being a miracle exporter to a country that runs steady trade deficits. Perhaps there is simply no narrowly economic recipe to keep its economy growing; Edward Hugh made this argument in his recent ebook, “The A B E of Economics.”

I am extremely pessimistic that we will manage to achieve any more than a small amount of workable population transfers.  Furthermore potential underpopulation is one of the most serious and underrated problems today, as Robin Hanson argued a few years ago.

There is also this bit, the first sentence of which may remind you of Steve Sailer:

France, Israel and Singapore are three countries where population issues are being discussed quite frankly; all have explicit public policies to encourage more births. And more countries will probably go down this route. Encouraging people to have more children, and generally bidding for human talent, may characterize the economic policies of the future, just as cities and states today bid for football stadiums and factories.

By the way, recent reports indicate that the relaxation of China’s one-child policy have led to many fewer births than were expected.  And this new paper (pdf) indicate that immigrant inflows raise the birth rates of native women by making child care more affordable.

In the modern sense that is, of course potatoes have been genetically modified for a long time:

The Agriculture Department on Friday approved the first genetically modified potato for commercial planting in the United States, a move likely to draw the ire of groups opposed to artificial manipulation of foods.

The Innate potato, developed by the J.R. Simplot Co., is engineered to contain less of a suspected human carcinogen that occurs when a conventional potato is fried, and is also less prone to bruising during transport.

Boise, Idaho-based Simplot is a major supplier of frozen french fries to fast-food giant McDonald’s.

The story is here, and you will note that on Tuesday the mandatory GMO-labeling initiatives failed in Oregon and Colorado, the second failure in Oregon and that means failures in four states overall.  Less positively, voters in Maui County, Hawaii chose to restrict GMO cultivation altogether.  And now McDonald’s is under pressure not to use these new potatoes for its french fries.  But of course you can understand the marketing dilemma of McDonald’s here — they can’t just come out and say “these french fries won’t give you cancer.”