Month: October 2010

Questions about durable goods

C.J. Chivers, via Andrew Sullivan:

Do you own anything that was manufactured in the 1950s and still is in regular, active use in your life?

Our house!  Otherwise it is a few artworks, but even most of the record collection, or for that matter the book collection, was made after that date.  I was manufactured in the early 1960s.  Am I forgetting something?

How immigrants create jobs

Here is my latest New York Times column, excerpt:

The study notes that when companies move production offshore, they pull away not only low-wage jobs but also many related jobs, which can include high-skilled managers, tech repairmen and others. But hiring immigrants even for low-wage jobs helps keep many kinds of jobs in the United States, the authors say. In fact, when immigration is rising as a share of employment in an economic sector, offshoring tends to be falling, and vice versa, the study found.

In other words, immigrants may be competing more with offshored workers than with other laborers in America.

American economic sectors with much exposure to immigration fared better in employment growth than more insulated sectors, even for low-skilled labor, the authors found. It’s hard to prove cause and effect in these studies, or to measure all relevant variables precisely, but at the very least, the evidence in this study doesn’t offer much support for the popular bias against immigration, and globalization more generally.

We see the job-creating benefits of trade and immigration every day, even if we don’t always recognize them. As other papers by Professor Peri have shown, low-skilled immigrants usually fill gaps in American labor markets and generally enhance domestic business prospects rather than destroy jobs; this occurs because of an important phenomenon, the presence of what are known as “complementary” workers, namely those who add value to the work of others. An immigrant will often take a job as a construction worker, a drywall installer or a taxi driver, for example, while a native-born worker may end up being promoted to supervisor. And as immigrants succeed here, they help the United States develop strong business and social networks with the rest of the world, making it easier for us to do business with India, Brazil and most other countries, again creating more jobs.

Here is the paper.  Here is related work by Peri on European labor markets.

Sentences to ponder

Nearly a quarter of South Korean men over 75 are still in the labor force, as are 14 percent of Japanese men. In the United States, a 10th of such men are working or seeking work, compared with half of 1 percent in France.

Put another way, a Korean man over 75 is more likely to be working than a Frenchman in his early 60s.

There is more here.

How well does the Mortensen-Pissarides model match the business cycle data?

From a few years back, Harold Cole and Richard Rogerson study this question and write:

We examine whether the Mortensen-Pissarides matching model can account for the business cycle facts on employment, job creation, and job destruction.  A novel feature of our analysis is its emphasis on the reduced-form implications of the matching model.  Our main finding is that the model can account for the business cycle facts, but only if the average duration of a nonemployment spell is relatively high — about nine months or longer.

I do not wish to claim that today's currently long unemployment spells make this the model to use.  I would point out, however, that most Keynesian models suggest more mean-reversion than we seem to be experiencing, especially since our central bank, whatever its weaknesses, is no longer allowing outright deflation.  The topic of "short run macroeconomics for the long run" will be a boom area, and right now it is poorly understood.

China fish fact of the day

Currently the world's wild [fish] catch measures 170 billion pounds — the equivalent in weight to the entire human population of China, scooped up and sliced, sauteed, poached, baked and deep-fried, year in and year out, every single year.  This is a lot of fish — six times greater than the amount of fish we took from the ocean half a century ago.

That is from Paul Greenberg's Four Fish: The Future of the Last Wild Food.

From the comments

PeterW has written:

I never really bought the "conservatives are fearful" argument; after all, the left is the one arguing for more economic protection.

I think a more useful distinction is that people want free-market competition in areas where they are strong, and protection and regulation in areas where they are weak. Conservatives want free competition in the economic sphere but moral protections in social interactions; liberals want protection from market forces but are happy to take their licks in status-seeking competitions.

In a state of nature, the highest-status people get away with much more bad behavior than low status folks. Therefore, strict social rules are essentially a progressive tax on status!

Richard T. Gill

Richard T. Gill, in all statistical probability the only Harvard economist to sing 86 performances with the Metropolitan Opera, died on Monday…He was 82.

The article is here.  Gill wrote many widely used texts and oddly he did not begin vocal training until he was almost forty. Up until that point, he had little acquaintance with classical music and he smoked two and a half packs of cigarettes a day.  He first performed in a staging of Figaro at Harvard, directed by John Lithgow and conducted by John Adams (the John Adams).  Later, he was in the world premiere of Philip Glass's Satyagraha.  Gill continued to write and edit textbooks throughout his singing career.

In 1971 he gave up his tenure at Harvard.  In 1984-85 he hosted a 28-part PBS show on economics.  In the 1990s he wrote two books, one on population the other on the decline of the American family.  Here is Gill's proposal for a Parental Bill of Rights.  His short stories for Atlantic Monthly and The New Yorker were widely anthologized and in 2003 he published his first novel.

Here is his home page.  At the time of his death he was working on a three to four-volume autobiography.  As a Harvard undergraduate he was a successful boxer and somehow he ended up as an Assistant Dean at Harvard by age 21 and later Master of Leverett House.

Popularizing Deadweight Loss

Indy requests a popularization of deadweight loss. Let's do the deadweight loss from a tax.

Imagine that you want to go to New York on a trip.  You value the trip at $50 and a bus ticket costs $40.  Do you take the trip? 

A. Yes.  The value ($50) of the trip exceeds the cost of the ticket ($40) so you travel to New York.   

How much consumer surplus (net value) do you get from the trip?

A. $10=$50-$40.

The government taxes bus tickets which raises the price of a bus ticket to $60.  Do you take the trip?

A. No. The value of the trip is now less than the price of the ticket.

What happened to the $10 consumer surplus which you used to get when there was no tax?

A. It's gone since no trip takes place.

Did the government get any tax revenue from you?

A. No.

Key idea: Consumers lose but the government does not gain from trips that are not taken.

Conclusion: Deadweight loss is the value of the trips (trades) which do not happen because of the tax.

New papers on fiscal policy

Price Fishback has a new paper (ungated but earlier draft here) surveying what we have learned about the macroeconomics of the Great Depression, here is one bit:

Some thinks that World War II offers an example of a situation where fiscal stimulus worked.  But the World War II analogy is highly misleading for any discussion of a peace-time economy.  The deficits were run during an all-out war when 40 percent of GDP was spent on munitions, the military made most of the allocation decisions in the economy, over 15 percent of the workforce was in harm's way in the military, there were widespread wage and price controls, and rationing ruled the day.  In essence, the World War II deficit experience tells us more about fiscal stimulus in the Soviet Union's command economy during the Cold War than it does about the modern U.S. mixed economy.

From Ethan Ilzetzki, Enrique Mendoza, and Carlos Vegh, here is a new paper (gated) on fiscal multipliers (shorter, ungated version here, powerpoints here, slides here, ungated but slightly older version here):

We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fiscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.

That's zero as in "two times zero equals zero," or "1/2 times zero equals zero too" or even "-0.5 times zero equals zero."  I don't think the multiplier is zero for the United States, but very likely it's zero in a bunch of places.