Month: April 2011

What I’ve been reading

1. Lizzie Collingham, The Taste of War: World War Two and the Battle for Food.  There aren’t many new angles for WWII books, but this is one of them.  The focus is on food markets during the war and Collingham covers both the Allied and Axis powers, interesting throughout.

2. What Makes a Masterpiece?: Artists, Writers, and Curators on the World’s Greatest Art, by Christopher Dell.  The “pick a bunch of mostly classic but occasionally surprising artworks and devote a few pages to each one” can work surprisingly well for popular art books and this is a good example of the virtues of that genre.

3. Jonathan Steinberg, Bismarck: A Life.  This truly vivid biography brings its subject to life through the extensive use of correspondence and quotation.  The reader gets an excellent feeling of how Bismarck’s government actually worked, his intensity and also his mediocrities, and also the importance of Bismarck in building up Germany as a European power.  The story is as gripping as a good novel.  Sadly, almost no attention is paid to the origins of the welfare state.  Still, this has received rave reviews and rightly so.

4. In the Plex: How Google Thinks, Works, and Shapes Our Lives, by Steven Levy.  I haven’t finished this yet, but so far it is excellent and full of substance.  Unlike a lot of company histories, it has a lot of economics, whether it is Google rediscovering the second price auction technique or the company having to hide how much money it was making from ads.  I had my doubts about a book on so popular a topic, but this one delivers.

Why do Brazilians emigrate so infrequently?

It is a populous country, yet there are few major Brazilian communities in the United States.  Only parts of Massachusetts, Queens, and Newark, New Jersey come to mind.  The U.S. Census estimates about 250,000 Brazilians living in the United States, which is many fewer than come from El Salvador, namely about two million.  Why is there such a difference?  The Brazilian number may well be an undercount but unofficial estimates still lie well below those of El Salvador.

1. Could it be that Brazil is too much fun to leave?  Or too much fun to generate the norms of upward mobility which encourage poorer people to leave for greater ambition?  If you live on the beach in northeastern Brazil, what exactly do you aspire to?

2. Do inhabitants of large, populous countries face larger cultural costs in leaving and adjusting their perspective?

3. Has Brazil had so much construction (including Brasilia), in its fairly wealthy sectors, that internal migration is a good enough substitute for external migration?

4. Brazil has a particular history of viewing the United States as a rival; El Salvador does not.

5. It seems that most Brazilian emigrants are ashamed to admit that they are emigrating to the United States, instead they claim they are simply “passing through,” or something similar.

What other points are relevant?  Here is a study (pdf) of Brazilian migrants to Massachusetts.

Brazil also does not attract many (recent) migrants, even though in some sectors the economic opportunities are strong.  It could be that external migrants have to compete too strongly with internal migrants from the poorer regions of Brazil.

Leonardo Monasterio restates the initial question in Portuguese.

Duncan Foley on the growth slowdown

Via Rortybomb, there is a new paper:

Service industries such as Finance, Insurance, and Real Estate, Education and Health Services, and Professional and Business Services, for which value added is imputed from incomes, are included in Gross Domestic Product, distorting measures of recession and recovery. An alternative index, Narrow Measured Value Added, which excludes all services, has similar historic correlations with employment to GDP, and tracks employment in recent business cycles better. The U.S. economy as measured by NMVA has a lower long-term real rate of growth. Long-term macroeconomic policy requires attention to some version of the productive-unproductive labor distinction of the classical
political economists.

The short paper is interesting, and speculative, throughout.  Here is one of the reproduced graphs.  I am comfortable distinguishing “productive” from “unproductive” activities on the grounds of rent-seeking and signaling considerations, but I would not push the distinction beyond that point.  I am not sure where Foley draws the line, and he stresses in the paper that his numerical measure is not conceptually perfect but rather given by the limitations of the data.

*The Origins of Political Order*

That is the new book from Frank Fukuyama and the subtitle is From Prehuman Times to the French Revolution.  A few points:

1. Every page is intelligent and reasonable.

2. It is a useful general overview of what we know about the origins of states, with full coverage given to the non-Western world, most of all China.

3. My single sentence summary would be: “I am showing you how some polities developed workable, strong states, based in accountability, and how others did not.”  If that is it, I would rather that the empirical material were more focused on the “model” and less on overall general narrative.  Ultimately the organization sprawls.  Nonetheless, this book is an important implied revision of public choice economics, with the focus on history and the question of how strong states get built.

4. In its scope and method, this book feels late 19th century.

5. I am not convinced by the discussion of why earlier China did not progress, found in the range of 51% on Kindle.  Fukuyama seems to suggest they simply weren’t interested in doing better.  I would be happier if so much did not rest on that question.

6. One implication of the analysis is that we should not be very optimistic about the current revolutions in the Middle East.

7. Try this sentence: “The very lateness of the European state-building project was the source of the political liberty that Europeans would later enjoy.”

8. The section on biology could use a major dose of Robin Hanson.

Here is one useful review.  Here is a review from The Economist.

Nouriel Roubini on Austro-Chinese business cycle theory

At Project Syndicate, he writes:

When net exports collapsed in 2008-2009 from 11% of GDP to 5%, China’s leader reacted by further increasing the fixed-investment share of GDP from 42% to 47%.

Thus, China did not suffer a severe recession – as occurred in Japan, Germany, and elsewhere in emerging Asia in 2009 – only because fixed investment exploded. And the fixed-investment share of GDP has increased further in 2010-2011, to almost 50%.

The problem, of course, is that no country can be productive enough to reinvest 50% of GDP in new capital stock without eventually facing immense overcapacity and a staggering non-performing loan problem. China is rife with overinvestment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.

Commercial and high-end residential investment has been excessive, automobile capacity has outstripped even the recent surge in sales, and overcapacity in steel, cement, and other manufacturing sectors is increasing further. In the short run, the investment boom will fuel inflation, owing to the highly resource-intensive character of growth. But overcapacity will lead inevitably to serious deflationary pressures, starting with the manufacturing and real-estate sectors.

Eventually, most likely after 2013, China will suffer a hard landing. All historical episodes of excessive investment – including East Asia in the 1990’s – have ended with a financial crisis and/or a long period of slow growth.

Do read the whole thing.

Acemoglu appointment seems to be a false rumor

It had been reported:

An ethnic Armenian, Daron Acemoglu, was nominated as the new Turkish Ambassador to France, a source in the Turkish Foreign Ministry told PanARMENIAN.Net.

Here is more.  It then changed to an OECD appointment and Acemoglu rejected all offers, expressing an interest in pursuing his academic career.  There are further reports and revisions hereOne Armenian source claims it was all a PR trick from the Turkish government, to win favor from Armenians.  Interpret all reports on this topic with caution.

Does Brasilia work?

That Brasilia is a monstrosity of a planned city, reflecting all of the worst excesses of rationalist constructivism and other Hayekian bugaboos, is a common cliche.  But the evidence does not support that picture.

Here is one eloquent paean to the livability of Brasilia (short pdf), it’s worth the quick read.

Admittedly, Brasilia does not work as well as Curitiba (also quite planned), but I would rather live here than in most other parts of Brazil, including Rio de Janeiro.  The Le Corbusier open city plan is wonderful for sunlight and relatively low congestion.  The city made its peace with the automobile a long time ago and it was planned for heavy auto usage.  There is still plenty of room to expand.

No one lives on the Washington Mall either.  The outlying areas feel normal and walking and shopping is easy.  The city’s “bad rap” from the 1970s and 80s seems to be gone.  I am told that the food and cultural scene is much better.  Brasilia is more expensive than most parts of Brazil but that is common for capital cities.  It’s a fair criticism that some of the commutes from outlying areas are too long.

Not everyone likes the architectural style but I would rate it as one of the top ten attractions of the New World and if I lived here I would be proud of it.

There are a few quick lessons:

1. Sorry Jane Jacobs fans, planned cities do sometimes work.  Take a look at postwar Germany too.

2. “Planned” cities are often less formally planned in their entirety than you think, and that is true for the greater Brasilia area.  Brasilia is a mix of planned and unplanned elements, and it’s the mix which (mostly) works.  We should not demonize either the “planned” or “unplanned” aspects of that blend per se.

3. Even when matters are quite screwed up from the policy or optimality side, mobility enforces an equality of average rates of return.  This is one of the most neglected insights of economics.

I thank Leonardo Monasterio for a useful conversation on these topics; here are his tips for visiting Brasilia.

A Christian Scientist’s guide for opting out of Medicare

You will find it here (pdf), and the broader set of links is here, some of the key material starts at p.10.  There is some general background here.  You can’t get your “money back,” but you can have the payments transferred to a qualified Christian Science care facility.  In other words, Medicare will pay for prayer.  A few points:

1. It would be easy to generalize this idea, and also easy to give people — whether or not they are Christian Scientists — some of their money back in return for forgoing higher levels of care.

2. American society recognizes the right of Christian Scientists not to pursue traditional forms of Medicare.  Can not that principle be extended, and in a way which saves money?

3. There is no public outcry about the horrible life outcomes, and endings, suffered by older Christian Scientists (there is a justified outcry about foregone treatments for the children).  It is not obvious that they have worse or less dignified deaths.  Here is a JAMA paper showing higher death rates for Christian Scientists, although presumably some of that effect is due to withholding care from younger people.  There is more information on the young here.   A Washington State study, cited in the JAMA piece, suggests the overall life expectancy effect of being a Christian Scientist is negative but small.

4. In any case I see no obvious moral repugnance, or public unacceptability, to giving people more money, in return for the equivalent of Christian Scientist health outcomes at later ages.

5. That said, taking the money instead of the Medicare does not (at all) require you to consume zero subsequent health care.

6. Large numbers of American retirees in Mexico and Costa Rica receive a lot or all of their health care without Medicare intervention.  Again, this is not considered scandalous nor are these horrible lives with horrible ends.  I am simply proposing that we pay people to be willing to do this.

7. The Medicare Advisory Board will be able to find only so much “pure fat” in its spending cuts.  And fiscal considerations will require a relatively modest federal mandate, in terms of the number of conditions it covers.  One way or another, letting some people do without massively subsidized care will become a reality (in fact it already is a reality), we are simply debating its scope and the fairness and efficiency principles for its implementation.

8. In the German system, if you don’t sign up at the right time you can be left uninsured.  A German may face this issue when living in the United States, but perhaps returning to Germany, namely when to let coverage lapse.  Again, this does not make for major scandals or unacceptable outcomes.  Some Germans choose to take that chance and of course they save some on the premium, with some risk at the back end.

9. If some individuals take the cash and secede from full Medicare, that frees up medical services, and lowers prices, for others.  The net decline in medical services isn’t as large as it appears at first.

10.  In the comments I read so much about choice biases and hyperbolic discounting, but no one mentions that most people significantly overrate the effectiveness of medical care, relative to the results in the RCT and refereed literature.  The comments themselves are evidence for this proposition.

11. There is nothing sacrosanct about the current division of benefits between Social Security and Medicare.  And no matter how you chop that one up, some important marginal needs are left unsatisfied.

12. Here are comments from Ezra Klein and Kevin Drum and Karl Smith.  Here is my last post on the topic.

Rio’s off-shore oil

Already estimated to contain 50bn barrels, and with much of the area still to be fully explored, the fields contain the world’s largest known offshore oil deposits. In one step, Brazil could jump up the world rankings of national oil reserves and production, from 15th to fifth…

“This could be the largest private sector investment programme in the history of mankind – more than actually putting a man on the moon,” says Pedro Cordeiro of the Bain & Company consultancy in São Paulo. He estimates the total investment could be roughly equivalent to the annual gross domestic product of Australia. “Not counting new concessions, you will have $1,000bn of investment over the next 10 years. It’s huge.”

The article is interesting throughout.  Ken Rogoff put it well: ““Brazil has everything that China doesn’t…”

For the pointer I thank Rohan Varavadekar, who also refers me to this article on hospital competition through billboards.

Assorted links

1. Brink Lindsey on frontier economics, and a related comment on education.

2. Advertising markets in everything.

3. Short Gary Gorton bit on CDS and excess transparency.

4. What is the consumer surplus from computers?  And is retirement stagnating?  And engines of stagnation.

5. Optimism about solar power.

6. In case I hadn’t made it clear, contrary to its critics the city of Brasilia works reasonably well.

Debunking Bartels on the Democrats

Larry Bartels has an oft-cited that Democratic Presidents are better for the economy.  Andrew Gelman has a nice presentation of the skeptical take of Jim Campbell.  For instance:

Jim Campbell recently wrote an article, to appear this week in The Forum (the link should become active once the issue is officially published) claiming that Bartels is all wrong–or, more precisely, that Bartels’s finding of systematic differences in performance between Democratic and Republican presidents is not robust and goes away when you control the economic performance leading in to a president’s term.

Here’s Campbell:

Previous estimates did not properly take into account the lagged effects of the economy. Once lagged economic effects are taken into account, party differences in economic performance are shown to be the effects of economic conditions inherited from the previous president and not the consequence of real policy differences. Specifically, the economy was in recession when Republican presidents became responsible for the economy in each of the four post-1948 transitions from Democratic to Republican presidents. This was not the case for the transitions from Republicans to Democrats. When economic conditions leading into a year are taken into account, there are no presidential party differences with respect to growth, unemployment, or income inequality.

File under “Was never convincing in the first place.”  Read the comments to the post also.