Month: April 2011

Brasilia notes

Could this be the strangest city I have visited?  And yet the people, the mood, the food, and the culture all seem quite normal, whatever that means.

I had not realized how much the city center was patterned after the Washington Mall, yet with modernist rather than classical buildings for the government, and with a modernist layout.  On each side of the major highway is “Crystal City on steroids,” with five-lane highways, boxy skyscrapers, and a huge bus station straddling the main road.  It resembles an old science fiction movie and yes I like old science fiction movies.  View here, and it really looks like this!  It is no wonder that the aliens chose Brazil to visit.

There is also a private sector presence here.  Don’t forget the neat bridge.  Here is my favorite church in town, Dom Bosco.  Here is the fine Palacio Itamarati.

The Memorial JK is an egotistical political monument.  It was built by Niemeyer in 1980 to honor the founder of Brasilia, Juscelino Kubitschek, former President  of Brazil, which is in turn a way to honor Niemayer.  Kubitschek’s remains lie beneath a skylight in a granite tomb, and the coffin reads O FUNDADOR.  The surrounding rooms are full of insufferable photos, suits, medals, and tie clips.

The clouds and skies are first-rate.

The home of the vice President is surrounded by ostriches.

Cash grants instead of Medicare?

Matt Yglesias tweets:

Yes, I think converting Medicare into a straight cash grant to seniors makes sense.

They might rather have a servant, or a better car, or an apartment which doesn’t require them to drive, or to eat a better diet or join a better gym. Or maybe they would rather live it up, travel, and perhaps die at a younger age.  That’s what pro-choice means.

On the public choice side, this suggestion would turn seniors into an active constituency for health care cost control.

Nonetheless I propose a more modest version of the idea.  When people turn a certain age, allow them to trade in the current benefits package for a minimalistic package (set broken limbs and offer lots of potent painkillers), plus some of the rest in cash, doled out over the years if need be.  For some people, medical tourism will fill the gap.

But if a person wishes, he or she can keep the extant benefit structure and forgo the cash altogether.  No one is forced to take this deal.

Objections?  You might think that “health” has a special moral status of some kind, but keep in mind “health care” is only one way of many to better health care outcomes, so you still can favor increasing the degree of choice.

Paul Krugman calls for a public provision option in Medicare, a bit like the VA system.  He doesn’t mention letting people choose some cash instead.  We have gone from “Free to Choose” to “Free to Choose more government.”

He makes a good point at the end: “And what would terrify the right, of course, is the likelihood that genuine socialized medicine would actually win that competition.”

What would terrify the left, of course, is the likelihood that genuine privatized cash would actually win that competition.

A new school of regulatory economics the culture that is Georgia

Members of a central Georgia church plan to gather at gas pumps to pray for lower prices.

WMAZ-TV reports the Beacon of Light Christian Center is planning the Saturday prayer gathering at gas pumps outside a Kroger grocery store in Dublin.

Pastor Marshall Mabry said he believes that if church members come together and pray as a community, they can make something happen.

Mabry said that with prices reaching almost $4, he says he plans to ask God for help.

He said it’s the third time members of his congregation have met at gas pumps to pray.

Mabry said he wants to start a movement which spreads from the small town of Dublin to the rest of the nation.

The article is here and I thank Peter Metrinko for the pointer.

End our Dependence on Vital Foreign Resources!

Writing in the Chicago Tribune Allen Sanderson decries our dependence on foreign resources:

For too long, the United States of America has been at the mercy of foreign interests — and nations in faraway lands that are often at odds with our core values — when it comes to the production of perhaps the most vital resource that drives our economy. We remain far too dependent on this imported commodity that could, in the time of emergency or international political crisis, be denied to us and thus cripple our productivity and reduce us to quivering masses of migraines in a matter of hours. The time for change is now.

I speak, of course, of our complete dependence on coffee…

Sanderson goes on to suggest a (anti?) stimulus plan to bring coffee production to Detroit where the jobs are most needed.

Hat tip: Michael Ward at Managerial Econ.

Why are real interest rates in Brazil so high?

In 2002 the ex ante real interest rate in Brazil seemed to be over fifteen percent (pdf).  The linked analysis blames the budget deficit, risky swaps premia, and other factors.  Sure enough, the Brazilian economy has done very well since 2002 and real rates are “down” to about five percent, which is still very high.  They are not so high in Chile, Mexico, or Turkey, arguably the economic peer countries of Brazil.  A different earlier analysis cites how the uncertainty of economic policy connects with international liquidity provision to generate high real rates.  Here is a paper on jurisdictional uncertainty and high rates in Brazil.  The history of high real interest rates is longer yet, covering many of the last thirty-five years.

I found the first and fourth links to offer overly complicated explanations, and those models did not offer stunningly correct predictions for the subsequent period.  The “crude” analysis is that the Brazilian savings rate is very low for a developing country (about fifteen percent of income), the size of the Brazilian government is very high for a developing country (about forty percent of gdp), and the productivity of real investment here is high because of lots of low-hanging fruit (literally and figuratively, not just tasty bananas but add on soya and off-shore drilling and other resources).  Yet bad mercantilist policies, bad labor law, and the pressure of government spending on savings all mean that the return on capital does not fall so much at the margin.  There remain many underexploited opportunities, and thus one can be a Brazil optimist while seeing only a tolerably good policy environment, but tolerably good it seems to be.

Sometimes, when risk and liquidity factors intervene, the real rate of interest is especially high, but it is quite high to begin with.

Sometimes it is argued that when the “U.S. monetary expansion ends” (please don’t debate that issue in the comments on this post), Brazilian real interest rates will rise once again to extreme levels.

High real interest rates keep Brazil relatively free of excess private sector debt.

It is odd how little economists understand about real interest rates.

Ahem, a lot of the spending cuts are frauds

Via the cool-minded Kevin Drum (I have added no extra indentation, it is Kevin and then the AP, and then Kevin again, not me):

Here’s AP reporter Andrew Taylor digging into the $38 billion in spending cuts that Republicans agreed to and finding that an awful lot of it is smoke and mirrors:

Instead, the cuts that actually will make it into law are far tamer, including […] $2.5 billion from the most recent renewal of highway programs that can’t be spent because of restrictions set by other legislation. Another $3.5 billion comes from unused spending authority from a program providing health care to children of lower-income families.

….The spending measure reaps $350 million by cutting a one-year program enacted in 2009 for dairy farmers then suffering from low milk prices. Another $650 million comes by not repeating a one-time infusion into highway programs passed that same year. And just last Friday, Congress approved Obama’s $1 billion request for high-speed rail grants — crediting themselves with $1.5 billion in savings relative to last year.

About $10 billion of the cuts comes from targeting appropriations accounts previously used by lawmakers for so-called earmarks….Republicans had already engineered a ban on earmarks when taking back the House this year.

Republicans also claimed $5 billion in savings by capping payments from a fund awarding compensation to crime victims. Under an arcane bookkeeping rule — used for years by appropriators — placing a cap on spending from the Justice Department crime victims fund allows lawmakers to claim the entire contents of the fund as budget savings. The savings are awarded year after year.

And this report from CBS News notes two other phantom cuts: $1.7 billion left over from the 2010 census and $2.2 billion in subsidies for health insurance co-ops that are going to be funded anyway via the healthcare reform bill. This stuff alone adds up to $27.4 billion, all of it money that wouldn’t have been spent anyway. I suppose you can argue that some of it might have gotten reallocated if it hadn’t been removed legislatively, but I doubt that the tea party true believers are in a mood to buy that. If these reports are correct, the bill contains only about $11 billion in hard cuts. Basically, it looks as if the tea partiers may have gotten snookered by their own side.

Assorted links

Porto Alegre notes

Dinner with ravioli, ice water, and a small coke cost $40.  It was very good, but no better than in the days of hyperinflation.  The real has risen more than forty percent against the U.S. dollar since 2008.

There is much here to study if you favor a greater density of high-rise buildings in cities.  The population tends to grow beyond the limits of the infrastructure, but arguably that would happen with sprawling suburbs too.

You can taste the future (and past) of bananas, once current U.S. brands are devastated by rot.  It is a bright future, though with lower quantity and probably higher price.

People keep on asking me if I know what acai is, and how Americans consume it.

“Cheeseburger” is spelled “Xis,” because that sound is how some Brazilians mispronounce the opening sound of”cheeseburger.”  Xis is now as much of a platform for culinary innovation as it is a specific meal.  It needn’t have meat or cheese at all, and it might be based on chicken hearts.  “Sweet pizza” is another creative culinary platform here.  Churrascarias are the static part of the food sector.

Pastels (a bit like empanadas) are very good and the expected rate of return from sampling random chocolate desserts is high.

If you imagine the Jardin section of Sao Paulo, and make it quieter and safer and greener, with an influence from B.A.’s Palermo district, you have the nice part of Porto Alegre, Moinhos.

The English-language expat sections of foreign bookstores are interesting; you get to see what people wish to read, not which books they wish to buy.

Best Rejection Letter Ever

…it is with no inconsiderable degree of reluctance that I decline the offer of any Paper from you. I think, however, you will under reconsideration of the subject be of the opinion that I have no other alternative. The subjects you propose for a series of Mathematical and Metaphysical Essays are so very profound, that there is perhaps not a single subscriber to our Journal who could follow them.

Sir David Brewster editor of The Edinburgh Journal of Science to Charles Babbage on July 3, 1821. Noted in James Gleick’s, The Information.

Serenity Parenting

I wasn’t surprised that Bryan Caplan’s Selfish Reasons to Have More Kids has the clearest explanation of the science of behavioral genetics that I have ever read (even clearer than the excellent discussions in Harris’s The Nurture Assumption or Pinker’s The Blank Slate.) Frankly, I was surprised that Bryan’s book is also the most useful parenting book that I have ever read. Selfish Reasons isn’t just clever, it is also wise.  Bryan’s views on parenting are often simplified down to “parents don’t matter.” But that’s wrong. Bryan knows that parents matter for all kinds of things, most of all for how parents and children enjoy childhood. Here is some of Bryan’s wisdom:

Once I became a dad, I noticed that parents around me had a different take on the power of nurture. I saw them turning parenthood into a chore—shuttling their kids to activities even the kids didn’t enjoy, forbidding television, desperately trying to make their babies eat another spoonful of vegetables. Parents’ main rationale is that their effort is an investment in their children’s future; they’re sacrificing now to turn their kids into healthy, smart, successful, well-adjusted adults.  But according to decades of twin research, their rationale is just, well, wrong.  High-strung parenting isn’t dangerous, but it does make being a parent a lot more work and less fun than it has to be.

The obvious lesson to draw is that parents should lighten up.  I call it “Serenity Parenting”: Parents need the serenity to accept the things they cannot change, the courage to change the things they can, and (thank you twin research) the wisdom to know the difference.  Focus on enjoying your journey with your child, instead of trying to control his destination.

Negative nominal interest rates

Here is a post by Matt Yglesias, my version goes like this:

1. If there is something akin to a liquidity trap, one can expect that a broader aggregate such as M2 has collapsed.  Accelerating the velocity of currency (say through a negative nominal interest rate, enforced through money stamping) may be a highly imperfect substitute for all the lost credit.  (Not all AD is created equal.)  Currency is usually small relative to M2, it is sector-specific, and the demand for currency can be slow to respond to relative prices.

2. If currency disappeared, how might negative nominal interest rates come about? The market won’t do it automatically.  Let’s say we start with zero price inflation and the real rate of return goes negative.  Competitive banks won’t impose negative nominal rates, rather the equilibrium is that they stop further real investments and pay zero on the balances.  One constraint is that some form of withdrawals may always be possible, the more important constraint is simply that “storing balances” costs almost nothing at the margin and so competition will bring a zero rather than negative nominal return, adjusting for costs of transacting of course.

3. There is another way to get negative nominal interest.  We could imagine a government-engineered reserve requirement, the shutting down of competing networks for trading reserves, and then the government raises the tax on those reserves to bring about negative nominal interest rates.  This can be done with or without the existence of zero-interest-bearing currency.  (Converting large quantities of reserves to currency, by the way, might be quite costly, given costs of transport and storage.)

4. Conclusion: getting rid of zero-interest-bearing currency doesn’t provide a new weapon against a liquidity trap.  Tsiang (JMCB, 1974), by the way, went to an extreme and argued that getting rid of zero-interest-currency meant you were in a liquidity trap all the time, because arguably the money-bonds distinction disappears.   I don’t agree, but the presumption lies in that direction.

5. Most generally, the problem in liquidity trap scenarios is that the economy is making an attempt to move from riskier assets to safer assets, and in the face of that attempted adjustment economic expansion is unlikely, no matter what the policy response.  Changing one of the properties of one of the safest assets (i.e., allowing currency to bear interest) probably won’t make the reequilibration process much easier if at all.  In broad outlines it will be pretty much the same.

Londenio’s four questions

This was his request:

1. How should I explore the German New Cinema (Herzog, Fassbinder, Wenders, etc.) ?

2. If I liked Benedict Anderson’s *Imagined Communities*, what should I read next?

3. Who is the Douglas Hofstadter of Economics?

4. What is the first non-personal question you would ask if you were to wake up from a 10-year-long coma?

Answers:

1. Herzog’s Nosferatu, Kaspar Hauser, und Little Dieter (German-language version only, and a very underrated movie) are my favorites from this tradition, which past Herzog I do not much admire or enjoy.  Not long ago I saw Herzog’s early documentary How Much Wood Would a Woodchuck Chuck?, 44 minutes on Netflix streaming, highly recommended, mostly it is footage of auctioneers talking really really fast, and percussively, to a partly Amish audience.

There is Wim Wenders’s Wings of Desire, but Fassbinder films I do not enjoy.  Try also the TV serial Heimat, which properly can be considered cinematic.

2. Creative Destruction: How Globalization is Changing the World’s Cultures, by me.

3. If you mix together Kenneth Boulding, G.L.S. Shackle, and Nassim Taleb, you might get an economics approximation of Hofstadter.

4. Are there major wars going on and how bad are they?

Capturing economic value

The gross revenues of the third-party gaming services industry were approximately $3.0 billion in 2009, most of which was captured in the developing countries where these services were produced. In comparison, the global coffee market, on which many developing countries are highly dependent, was worth over $70 billion–but only $5.5 billion was captured by the developing countries that produced the coffee beans.

The document is here and for the pointer I thank Pin-Quan Ng.