Month: August 2010

Yglesias on Occupational Licensing

I am outsourcing this post entirely to Matt Yglesias because it's awesome and it made me very happy to see how public choice has moved out in the world:

A number of people, including many commenters here and even alleged
conservative James Joyner think you should need a professional license to become
a barber because you might hurt
someone with a straight razor
. Uh huh. At best this would be an argument for
regulating people who do shaves with a straight razor, which would be
considerably narrower than current comprehensive regulation of hair
stylists.

Meanwhile, though “torts and the free market will take care of it” isn’t the
answer to everything, it’s surely the answer to some things. Getting
some kind of training before you shave a dude with a straight razor is obviously
desirable in terms of strict self-interest. If you screw it up in a serious way,
you’ll face serious personal consequences and the only way to make money doing
it–and we’re talking about a very modest sum of money–is to do it properly.
People also ought to try to think twice about whether their views are being
driven by pure status quo bias. Barbers are totally unregulated in
the United Kingdom
, is there some social crisis resulting
from this? Barber regulations differ from state to state, are the stricter
states experiencing some kind of important public health gains?

Last you really do need to look at how these things play out in practice. If
you just assume optimal implementation of regulation, then regulation always
looks good. But as I noted
in the initial post
the way this works in practice is the boards are
dominated by incumbent practitioners looking to limit supply. One result is that
in Michigan (and perhaps elsewhere) it’s hard for
ex-convicts to get barber licenses
which harms the public interest not only
by raising the cost of haircuts, but by preventing people from making a
legitimate living. States generally don’t grant reciprocity to other states’
licensing boards, which limits supply even though no rational person worries
about state-to-state variance in barber licensing when they move to a New Place.
In New Jersey, you need to take the
straight razor shaving test to cut women’s hair
because they’re thinking up
arbitrary ways to incrementally raise the barrier to entry.

In principle, you could deal with all these problems piecemeal. But
realistically this sort of problem is inevitably going to arise when you pit the
concentrated interest of incumbent haircutters against the diffuse interest of
consumers. It’s hard enough to make sure that really important regulatory
functions related to environmental protection, public safety, and financial
stability are done properly.

Arbitraging against the German state in Paraguay

David Carter sends me a fascinating article about a German man, who has been "operating" in Paraguay:

Jürgen saltó a la fama -y puso en pie de guerra a las autoridades- cuando un periódico local descubrió que se había atribuido la paternidad biológica de 300 menores en Europa, Asia y América.

…Es, ni más ni menos, la fórmula que discurrió para que el Estado alemán tenga que conceder la ciudadanía a los pequeños desamparados de este mundo, fruto de embarazos no deseados, de amores transitorios; los hijos de los tarambanas que dicen que van a comprar cigarrillos y se hacen humo.

«Yo reconozco como mío a un pobrecito [lo dice en español] del Tercer Mundo y mi país, gústele o no, se ve obligado a otorgarle una subvención de 500 euros mensuales. Así lo establece la ley, y las leyes están para ser acatadas», explica.

The bottom line is that he is going to poor countries and fathering as many children as possible, and probably fabricating some paternities along the way, so that each child's mother can receive a 500 euros a month subsidy from the German government.  The German treasury already has paid out over three million euros to various children under his (supposed) paternity.

In 1993 he was sentenced to prison for three years, for impersonating a lawyer without having a rightful license.

What is emblematic of the 21st century?

A recent reader request was:

What things that are around today are most distinctively 21st century?  What will be the answer to this question in 10 years?

Here is what comes to mind and I think most of it will remain emblematic for some time:

Technology: iPhone, Wii, iPad, Kindle.  These are no-brainers and I do think it will go down in American history as "iPhone," not "iPhone and other smart phones."  Sorry people.

To read: blogs and Freakonomics, this is the age of non-fiction.  I don't think we have an emblematic and culturally central novel for the last ten years.  The Twilight series is a possible pick but I don't think they will last in our collective memory.  Harry Potter (the series started 1997) seems to belong too much to the 1990s.

Films: Avatar, Inception (for appropriately negative reviews of the latter, see here, here, and here).  Both will look and feel "of this time."  Overall there have been too many "spin-off" movies.  Keep in mind this question is not about "what is best."

Music: It's been a slow period, but I'll pick Lady Gaga, most of all for reflecting the YouTube era rather than for her music per se.  I don't think many musical performers from the last ten years will become canonical, even though the number of "good songs" is quite high.  Career lifecycles seem to be getting shorter, for one thing.

TelevisionThe Sopranos starts in 1999, so it comes closer to counting than Harry Potter does.  It reflects "the HBO era."  Lost was a major network show and at the very least people will laugh at it, maybe admire it too.  Battlestar Galactica.  Reality TV.

What am I missing?  What does this all add up to?  Pretty strange, no?

p.s. Need to add Facebook and Google somewhere!

Declines in demand and how to disaggregate them

Let’s say that housing and equity values fall and suddenly people realize they are less wealthy for the foreseeable future.  The downward shift of demand will bundle together a few factors:

1. A general decline in spending.

2. A disproportionate and permanent demand decline for the more income- and wealth-elastic goods, a category which includes many consumer durables and also luxury goods.  (Kling on Leamer discusses relevant issues.)

3. A disproportionate and temporary demand decline for consumer durables, which will largely be reversed once inventories wear out or maybe when credit constraints are eased.

Those are sometimes more useful distinctions than “AD” vs. “sectoral shocks,” because AD shifts consist of a few distinct elements.

If you see #1 as especially important, you will be relatively optimistic about monetary and fiscal stimulus.  If you see #2 as especially important, you will be relatively pessimistic.  You can call #2 an “AD shift” if you wish, but reflation won’t for the most part bring those jobs back.  People need to be actually wealthier again, in real terms, for those spending patterns to reemerge in a sustainable way.  Stimulus proponents regularly conflate #1 and #2 and cite “declines in demand” as automatic evidence for #1 when they might instead reflect #2.

If you see #3 as especially important, and see capital markets as imperfect in times of crisis, you will consider policies such as the GM bailout to be more effective than fiscal stimulus in its ramp-up forms.

Sectoral shift advocates like to think in terms of #2, but if #3 lurks the shifts view can imply a case for some real economy interventions.  I read Arnold Kling as wanting to dance with #2 but keep his distance from #3.  But if permanent sectoral shifts are important, might not the temporary shifts (we saw the same whipsaw patterns in international trade) be very important too?  Can we embrace #2 without also leaning into #3?

I wish to ask this comparative question without having to also rehearse all of the ideological reasons for and against real economy bailouts.  It gets at why the GM bailout has gone better than the fiscal stimulus, a view which you can hold whether you favor both or oppose both.

Note there also (at least) two versions of the sectoral shift view and probably both are operating.  The first cites #2.  The second claims some other big change is happening, such as the move to an internet-based economy.  If both are happening at the same time, along with some #1 and some #3, that probably makes the recalculation problem especially difficult.

I see another real shock as having been tossed into the mix, namely that liquidity constraints have forced many firms to identify and fire the zero and near-zero marginal productivity workers.

There’s also the epistemic problem of whether we have #2 or #3 and whether we trust politics to tell the difference.

The Germans had lots of #3 (temporary whacks to their export industries) and treated them as such, whether consciously or not, and with good success.  Arguably Singapore falls into that camp as well.  The U.S. faces more serious identification problems, whether at the level of policy or private sector adjustment.  We have not been able to formulate policy simply by assuming that we face a lot of #3.

I would have more trust in current applied policy macroeconomics if we could think through more clearly the relative importances of #1, 2, and 3.  And when I hear the phrase “aggregate demand,” immediately I wonder whether it all will be treated in aggregate fashion; too often it is.

Markets in everything

Artisanal toothpicks:

Established in 1704, Saruya is the only shop in Japan specializing in toothpicks. Of course our toothpicks are not the machine-made, mass-produced items you find anywhere, but hand-crafted, quality toothpicks made from “kuromoji” or spicewood (lindera). Kuromoji is a member of the camphor (linden) family, and besides its fine aroma, it is flexible and hard to break, making it an ideal material for toothpicks.
In addition to regular-use toothpicks, we also make toothpicks to use like a fork for eating slices of fruit or Japanese sweets. Depending on the product, toothpicks might be packaged in a wooden box, or individually wrapped in paper, etc.

At five dollars a box, they are cheaper than artisanal pencil sharpenings.

Afternoon at the Treasury

Yesterday, Tyler, myself and a handful of other economics bloggers had a chance to discuss the economy with Treasury Secretary Geithner and other treasury officials. Here are a few random notes.

There was deep skepticism about the financial industry and about reform from some of the bloggers. More let’s say “radical” approaches such as Treasury taking an equity stake in underwater homes or giving everyone a guaranteed income were brought up. I was surprised to find myself on the side of the more conservative Treasury officials who cogently argued that such reforms were neither politically viable nor likely to work.  Treasury gave a good argument that reform had been deep and meaningful.

A few good lines from a senior treasury official as I recall the gist:

  • “Markets believe we can borrow. The public doesn’t. We need both to move forward on the fiscal front."
  • “Businesses are investing in a way that shows more confidence than they are talking.” (graph here, see the last year or so AT) 

There was a recognition that the Fed could do “dramatic” things but a sense that the theory here was uncertain and untested.

The best question of the day came from Tyler. The discussion was on the financial reform bill and how it changed the incentives of players in the financial industry by creating more risk for them. Tyler interrupted with “What I really want to know is how your incentives have been changed! What is to say that next time the decision will not be made to again bailout the bondholders?”

As Tyler said after an earlier visit, Geithner is smart and deep. Geithner took questions on any topic. Bear in mind that taking questions from people like Mike Konczal, Tyler, or Interfluidity is not like taking questions from the press. Geithner quickly identified the heart of every question and responded in a way that showed a command of both theory and fact. We went way over scheduled time. He seemed to be having fun.

*Packing for Mars*

Dust is the lunar astronaut’s nemesis.  With no water or wind to smooth them, the tiny, hard moon rock particles remain sharp.  They scratched faceplates and camera lenses during Apollo, destroyed bearings, clogged equipment joints.  Dusting on the moon is a fool’s errand.  Unlike on the Earth, where the planet’s magnetic field wards off charged particles of solar wind, these particles bombard the moon’s surface and impart an electrostatic charge.  Moon dust clings like dryer socks.  Astronauts who stepped from the Lunar Module in gleaming white marshamllow suits returned a few hours later looking like miners.  The Apollo 12 suits and long johns became so filthy that at one point, astronaut Jim Lovell told me, the crew “took off all their underwear and they were naked for half the way home.”

That is from Mary Roach’s new book, subtitled The Curious Science of Life in the Void.

Further German predictions about 2010

Everard Hustler, writing in 1910, predicted that in 2010 tuberculosis patients will conquer the disease by receiving shots of radium and by inhaling streams of radioactive air, with pipes running to their mouths and cloths tied tightly around their heads, and covering their eyes (the accompanying illustration is a good one), to make sure none of the radioactive air escapes.

He also predicted that a hostile nation could destroy the Berlin Rathaus using a beam of radium energy, shot from…a hovering zeppelin.

Radium: good to inject, good to inhale, bad to shoot at a tower from a zeppelin.  

That sounds odd, but radiation as a method of medicine starts in the 1920s and it uses the element of radium.   Modern chemotherapy does not arise until 1940, with the use of mustard gas.  Chemotherapy to attack tuberculosis starts in 1944.

Still, E.H. was not as perceptive as the guy who predicted the iPhone.

Do minimum parking requirements matter?

W. Bowman Cutter, Sofia F. Franco, and Autumn DeWoody have a new paper titled "Do Minimum Parking Requirements Force Developers to Provide More Parking than Privately Optimal?" The abstract is this:

Minimum parking requirements are the norm for urban and suburban development in the United States (Davidson and Dolnick (2002)). The justification for parking space requirements is that overflow parking will occupy nearby street or off-street parking. Shoup (1999) and Willson (1995) provides cases where there is reason to believe that parking space requirements have forced parcel developers to place more parking than they would in the absence of parking requirements. If the effect of parking minimums is to significantly increase the land area devoted to parking, then the increase in impervious surfaces would likely cause water quality degradation, increased flooding, and decreased groundwater recharge. However, to our knowledge the existing literature does not test the effect of parking minimums on the amount of lot space devoted to parking beyond a few case studies. This paper tests the hypothesis that parking space requirements cause an oversupply of parking by examining the implicit marginal value of land allocated to parking spaces. This is an indirect test of the effects of parking requirements that is similar to Glaeser and Gyourko (2003). A simple theoretical model shows that the marginal value of additional parking to the sale price should be equal to the cost of land plus the cost of parking construction. We estimate the marginal values of parking and lot area with spatial methods using a large data set from the Los Angeles area non-residential property sales and find that for most of the property types the marginal value of parking is significantly below that of the parcel area. This evidence supports the contention that minimum parking requirements significantly increase the amount of parcel area devoted to parking.

The paper is here.  Here is a related paper, or here.

Is this a parody, set up to bait MR?

Park officials in China have found a way to stop people from hogging their benches for too long – by fitting steel spikes on a coin-operated timer.

If visitors at the Yantai Park in Shangdong province, eastern China, linger too long without feeding the meter, dozens of sharp spikes shoot through the seat.

The spikes are too short to cause any serious harm – but long enough to prevent people from sitting on them comfortably.

Park bosses got the idea from an art installation in Germany where sculptor Fabian Brunsing created a similar bench as a protest against the commercialisation of modern life.

"He thought he was exaggerating. He didn't foresee that a very practical country like China might actually use them for real," said one critic.

The article is here and I thank both Brendan and Jonathan for the pointer.  How should I have titled this post? 

Robert Sloss predicted the iPhone in 1910

Well, more or less.  Or is it an iPad?  In 1910 Stoss published an essay called "The Wireless Century," intending to predict the world of 2010.  In this world everyone carries around a "wireless telegraph" which:

1. Serves as a telephone, the whole world over.

2. Either rings or vibrates in your pocket.

3. Can transmit any musical recording or performance with perfect clarity.

4. Can allow people to send each other photographs, across the entire world.

5. Can allow people to see the images of paintings, museums, etc. in distant locales.

6. No one will ever be alone again. 

7. Can serve as a means of payment, connecting people to their bank accounts and enabling payments (Japan is ahead of us here).

8. Can connect people to all newspapers, although Sloss predicted that people would prefer that the device read the paper aloud to them (not so much the case).

9. Can transmit documents to "thin tubes of ink," which will then print those documents in distant locales.

10. People will have a better sense of the poor, and of suffering, because they will have witnessed it through their device (not obviously true, at least not yet).

11. People will vote using their devices and this will empower democracy (nope).

12. Judicial testimonies will be performed over such devices, often from great distances.

13. People will order perfectly-fitting fashions from Paris; this guy should be in the Apps business.

14. Married couples will be much closer, and distance relationships will be closer and better.

15. Military targeting and military orders will become extremely precise.

The essay is reprinted in the Arthur Brehmer book Die Welt in 100 Jahren.  The book is interesting throughout; a bunch of the other writers thought in 2010 we would be fighting wars with large zeppelins.