Month: January 2011

Tim Worstall gets it

by  Tyler Cowen in

There was somewhere between none and fuck all economic growth in the US (and many other economies) in the 1929-1945 period. But the production frontier continued to move outwards, indeed, the 30s are one of the all time great decades for both technology and productivity improvements. The 50s to the 80s were simply playing catch up, in the same way that China and India are now.

And:

For it’s…saying that the great Post WWII economic expansion was nothing to do with high unionisation rates, Bretton Woods, restrictions upon capital movements, high marginal tax rates, fixed exchange rates or any other of the “liberal” or “social democratic” (use one for the US, the second for Europe) theories that are so often advanced.

The full post is here.

China fact (book) of the day

by  Tyler Cowen in

When it comes to the overall death toll, for instance, researchers so far have had to extrapolate from official population statistics…Their estimates range from 15 to 32 million excess deaths.  But the public security reports compiled at the time, as well as the voluminous secret reports collated by party committees in the last months of the Great Leap Forward, show how inadequate these calculations are, pointing instead at a catastrophe of a much greater magnitude: this book shows that at least 45 million people died unnecessarily between 1958 and 1962.

That is from Frank Dikötter's Mao's Great Famine: The History of China's Most Devastating Catastrophe, 1958-1962, which is one of the scariest books I have read.  Here is another passage, I am not sure how well it is sourced:

Mao was delighted.  As reports came in from all over the country about new records in cotton, rice, wheat or peanut production, he started wondering what to do with all the surplus food.  On August 4 1958 in Xushui, flanked by Zhang Guozhong, surrounded by journalists, plodding through the fields in straw hat and cotton shoes, he beamed: "How are you going to eat so much grain?  What are you going to do with the surplus?"

"We can exchange it for machinery," Zhang responded after a pause for thought.

[Showing a poor understanding of Say's Law] "But you are not the only one to have a surplus, others too have too much grain!  Nobody will want your grain!"  Mao shot back with a benevolent smile.

"We can make spirits of out of taro," suggested another cadre.

"But every county will make spirits!  How many tonnes of spirits do we need? Mao mused.  "With so much grain, in future you should plant less, work half time and spend the rest of your time on culture and leisurely pursuits, open schools and a university, don't you think?…You should eat more.  Even five meals a day is fine!"

Here are some reviews of the book.

What are the highest prices for video art?

by  Tyler Cowen in

Bill Viola's Eternal Return sold for $712,452 in 2000.  The rest of the top ten is all by Viola, Nam June Paik, Matthew Barney, and Bruce Nauman, with the #10 work going for $234,814.  I like video art, but to buy it…to me that is one very expensive movie ticket.  I did, however, shell out for a Netflix subscription, so at the margin I can watch Black Narcissus for nothing.

The data are from the new and interesting book Art of the Deal: Contemporary Art in a Global Financial Market, by Noah Horowitz.

*The Great Stagnation*, excerpt

by  Tyler Cowen in

From my new eBook, here is one bit:

I’m also persuaded by the median income numbers because they are supported by related measurements of other magnitudes. For example, another way to study economic growth is to look not at median income but at national income, gdp, or gross domestic product, the total production of goods and services.  Charles I. Jones, an economist at Stanford University, has “disassembled” American economic growth into component parts, such as increases in capital investment, increases in work hours, increases in research and development, and other factors. Looking at 1950–1993, he found that 80 percent of the growth from that period came from the application of previously discovered ideas, combined with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future. In other words, we’ve been riding off the past. Even more worryingly, he finds that now that we are done exhausting this accumulated stock of benefits, we are discovering new ideas at a speed that will drive a future growth rate of less than one-third of a percent (that’s a rough estimate, not an exact one, but it is consistent with the basic message here). It could be worse yet if the idea-generating countries continue to lose population, as we are seeing in Western Europe and Japan.

I do not hold the view that relative stagnation will last forever, only that it has lasted for thirty-seven years and that it will not end immediately.  Oddly, it is the so-called "economic right" — which complains bitterly about decades of increasing taxes and regulation and litigation and government privilege — which finds such a claim hardest to accept.

You can pre-order the eBook; the Amazon link is here, Barnes&Noble here, $4.00.  I offer further information on the book here.

Assorted links

by  Tyler Cowen in

1. Taking a test helps cement your learning.

2. Communist Monopoly game, called Queue.

3. Threats against Francis Fox Piven.

4. "This study may be true but it is hard to know because the study that served as the counterfactual was never able to get published :)" Link here.

5. Why wages are sticky.

6. Markets in everything: human cheese; "soft and spreadable…"

7. Bob Barr, former LP candidate, now representing Duvalier.  Say it ain't so.  It's so!

*Peddling Protectionism*

by  Tyler Cowen in

The author is the excellent Douglas A. Irwin and the subtitle is Smoot-Hawley and the Great Depression.  The book's home page is here.  Excerpt:

The popular perception is that the Smoot-Hawley tariff raised import duties to record levels and helped cause the Great Depression.  In fact, the legislated tariff increase was much smaller than commonly imagined, although it still managed to erase 15 percent of America's imports of dutiable goods upon impact.  For reasons that will be explained, it was the deflation of prices that accompanied the Great Depression that pushed the tariff to near record levels, restricting trade even more…most economic historians do not believe that the Smoot-Hawley tariff played a large role in the macroeconomic contraction experienced during the Great Depression.

It is well known that Doug is hard at work on what will prove to be "the modern Taussig," a history of international trade, and protection, in the context of the rise of the American economy; one assumes that this more focused book will be feeding into the larger whole. 

Has school segregation gone down since MLK?

by  Tyler Cowen in

I received this very useful email from Ken Hirsch:

I looked into the basis for the statement I read on Marginal Revolution that "American schools are more segregated by race and class today than they were on the day Martin Luther King, Jr. was killed". The source that was given did not actually have statistics going back to the 1960s, but the author of the report, Gary Orfield, pointed me to an earlier report, "Brown at 50: King's Dream or Plessy's Nightmare" (http://tinyurl.com/BrownAt50), which did contain a time series for one measurement, "Percent of Black Students at Majority White Schools".  There's a graph of this statistic for Southern black children on the cover of the report which I am attaching to this email.

This statistic is quite problematic. Most starkly, in "majority minority" states, such as Texas and California, this statistic measures the *opposite* of integration.  The more evenly distributed that ethnic groups are in schools, the lower the the number. If all schools in California had exactly the same ethnic make-up, there would be no majority white schools, so 0% of black students would be in them!  Indeed, in Table 11 from this report (p. 27), California is given as the most segregated state by this measure.

The other two measures that Dr. Orfield uses have similar problems. Most of the change in all three are probably caused by the increase in the percent of Hispanics and the decrease in the percent of non-Hispanic whites, not by segregation. By most mathematically sensible measures, segregation has decreased and integration has increased over the last 20 years. See "Measuring School Segregation" by David M. Frankel and Oscar Volij for details: http://www.econ.iastate.edu/research/working-papers/p11808

The original post was here.

Markets in everything

by  Tyler Cowen in

Bosses at Washington's cash-strapped public transportation service are mulling selling "naming rights" for Metro stations as a way of filling a budget gap, a spokesman said Friday.

"We're looking at a possible $72 million dollar shortfall in our budget for the upcoming year, and so we're looking for creative ways to try to close that deficit," Metro spokesman Steven Taubenkibel told AFP.

"One idea would be station naming rights," where corporate entities buy the right to have their brand associated with one of Metro's 86 stations.

There are precedents:

Philadelphia has sold telecoms giant AT&T the rights to a station for $3 million, and Barclays can append its name to a station in Brooklyn, New York after buying the naming rights reportedly for $4 million for 20 years.

In Washington, Metro thinks selling station naming rights will help to raise around two million dollars.

For 86 stations, that doesn't seem very good to me.  The full story is here and for the pointer I thank Daniel Lippman.  There are now jokes like "Big-Macpherson Square" stop and the like.

Structural problems in the U.S. labor market

by  Tyler Cowen in

I don't agree with everything in this piece, by Jim Tankersley, but it is a good overview of why currently high unemployment isn't just about demand (though it is about that too).  Excerpt:

Blinded by low unemployment, lawmakers and economists overlooked two crucial warning signs of the nation’s deteriorating economic health. One was the percentage of working-aged men–the traditional backbone of the U.S. labor force–who held a job. The other was the number of jobs being created each month. Throughout the 2000s, both numbers nose-dived.

From MIT:

[David] Autor is pioneering the research into what he calls the “polarization” of American jobs into low- and high-skill camps, but even he isn’t sure whether his findings explain our national jobs crisis or result from it. “I don’t have a simple answer,” he wrote in an e-mail recently. “I think the prosperity in the 2000s, even prior to the crisis, was quite ephemeral, bordering on illusory. I’m not sure that’s a result of polarization per se. But it is a mystery why the good times ended” at the turn of the century. The completed circle of losses and gains from globalization, he added, is “what is supposed to happen in the long run. But it requires investment, adjustment, adaptation.”

Read the whole thing.  I believe that the prominence and persistence of "demand-only" theorists in the blogosphere (DeLong, Krugman, Sumner, and others) give blog readers quite a skewed picture of the actual debate.

I won’t bother to explain the context: Murphy, Krugman, etc.

by  Tyler Cowen in

If you care, you already know the context with p = 0.87.  Bob Murphy writes:

Cowen is right that a sustainable lengthening of the capital structure initially requires a reduction in consumption; what happens is investors abstain and plow their savings into the new projects. But during a central-bank-induced boom, there hasn't been real savings to fund the new investments. That's why the boom is unsustainable, but it also explains why consumption increases at the same time. It's true that this is impossible in the long run, but in the short run it is possible to increase investment in new projects, and to increase consumption at the same time. What you do is neglect maintenance on critical intermediate goods, just as our islanders were able to pull off the feat for a few months.

Krugman's response, which focuses on slightly different issues, is here.  I will say that in the Austrian theory, once the central bank lowers the real interest rate, the increase in investment ought to come from shorter-term processes, such as real consumption.  (That's if you think the interest rate substitution effect is dominant, as the theory implies.)  Capital maintenance is usually a longer-term process and it ought to be encouraged by the lower rates induced by monetary policy.  The employment and liquidity boosts of the boom also might encourage more capital maintenance.

There is of course a literature on the cyclicality of depreciation, capital maintenance, and so on.  Overall it supports my claims, for instance: "In all cases, investment and maintenance are gross complements."  Or see here.  The most careful study I could find, based on Canadian data, shows that investment and capital maintenance move together in the same direction.  This piece argues for countercyclical maintenance expenditures, but not on the basis of any actual evidence.  In any case, how much is capital maintenance as a percent of gdp anyway?  Here is one earlier Canadian estimate of about six percent.  Will variations in that sum — with conversion time — be enough to support a consumption boom?  With expanding capital investment, a full employment assumption, and a basic closed economy model?  I doubt it.

Maybe Murphy has a revisionist view of the capital maintenance literature or maybe he would consider those unfair tests, because they are not all embedded in Austrian scenarios.  Still, the burden of proof here is on him and I don't see that he has cited evidence at all.  Comovement remains an embarassing empirical fact for Austrian accounts of the boom.