Month: August 2011

Warren Samuels passes away

He was known to be a very fine man and a true and curious scholar.  Here is his Wikipedia page:

Warren Joseph Samuels, (born 1933, New York City, (died 2011, Gainesville, FL) was an American economist and historian of economic thought. He received a BBA from University of Miami, Miami, FL and obtained his Ph.D. from University of Wisconsin–Madison. After holding academic posts in the University of Missouri, Georgia State University, Atlanta, and University of Miami, he was appointed Professor of Economics in Michigan State University in 1968, where he stayed until his retirement in 1998.

Warren Samuels has made many extremely valuable contributions to the history of economic thought and the methodology of economics. His work has been inspired primarily by his “…interest in generating greater clarity as to the economic role of government both in the history of economic thought and in contemporary economics”.[1]

Here is his home page, and here he is on scholar.google.com.  I think of him as one of the economists who kept alive institutionalism, economic method, and history of thought as intellectually vital disciplines.

Addendum: Peter Boettke pens a fine appreciation.

Facts about Texas household debt

Texans have less than half the household debts of Californians, and 28 percent less than the national average, according to the Federal Reserve Bank of New York.

…Low debt levels do not necessarily make Texans better credit risks, however. Texas has the nation’s second-lowest credit scores. (Mississippi ranks last.) On a scale of 500 to 990, Experian says the average Texan’s score is 717. The national average is 749.

The lower score is due mainly to a history of late loan payments.

…Dana Johnson, chief economist with Dallas-based Comerica Bank, said lower unemployment and lower overall household debt should still make it easier for Texans to spur economic growth.

“Typical Texas workers are carrying less debt because they don’t have to – house prices are relatively modest,” he said.

“If Texans are less burdened with debt, it’s all the easier for them to make an acquisition of something like a car or some other durable purchase. I don’t think there’s any question,” Johnson said.

…Average mortgage debt in Texas is $23,999.

Here is the link, the question was posed by Ezra Klein on Twitter.

Life mirrors…?

An Australian investment banker accused in his home country of locking a fake bomb to a teenager’s neck was ordered jailed Tuesday in Louisville, Ky., pending an extradition hearing.

Paul Douglas Peters’ appearance in federal court followed his arrest by the Federal Bureau of Investigation Monday at his ex-wife’s home outside Louisville. It culminated a chase across two continents, from an exclusive Sydney suburb where Mr. Peters, nattily garbed but wearing a balaclava helmet, allegedly fastened a black box around 18-year-old Madeleine Pulver’s neck on Aug. 3, to Debra Peters’ home in a quiet upscale neighborhood.

Here is more.

In defense of Texas jobs performance?

I have now read Matthias Shapiro (not a Perry supporter by the way) and he seems to have the best treatment so far.  One excerpt:

Since the recession started hourly wages in Texas have increased at a 6th fastest pace in the nation.

Another:

We can see that Texas has grown the fastest, having increased jobs by 2.2% since the recession started. I want to take a moment and point out that second place is held by North Dakota. I added North Dakota to my list of states  to show something very important. North Dakota currently has the lowest unemployment rate of any state at 3.2%. And yet Texas is adding jobs at a faster rate than North Dakota. How can this be?

The reason is that people are flocking to Texas in massive numbers…

As you can see, Texas isn’t just the fastest growing… it’s growing over twice as fast as the second fastest state and three times as fast as the third. Given that Texas is (to borrow a technical term) f***ing huge, this growth is incredible.

People are flocking to Texas in massive numbers. This is speculative, but it *seems* that people are moving to Texas looking for jobs rather than moving to Texas for a job they already have lined up. This would explain why Texas is adding jobs faster than any other state but still has a relatively high unemployment rate.

This piece encompasses, and responds to, all of the “Texas critiques” we have seen so far.  And there are good graphs at the link.  For the pointer I thank Nate Silver, a tough cookie when it comes to data; he calls it a “great piece.”

Scott Sumner on sticky wages for the unemployed

Scott writes (and Alex seconds, and here is a Woolsey response):

Nominal wages are fixed for the employed. NGDP falls 5%, and 5% of workers are laid off. Now the unemployed workers lower their wage demands by 20%. Why not by even more? Because of minimum wage laws, unemployment insurance, fear of loss of prestige, etc.

Suppose companies are not worried about workers making invidious comparisons (a big if, but I’ll grant this point to my opponents.) In the best case scenario firms lay off 4% percent of their workers and hire back the 5% who are unemployed at the same total wage bill. The excess unemployment is now 4% instead of 5%. The total unemployment rate falls from 10% to 9% (assuming 5% is the natural rate.) No big deal, we are still deep in recession. Thus wage flexibility among the unemployed doesn’t really help very much. If all employed workers accepted a 5% pay cut (or if the government ordered such a cut) and the Fed kept targeting inflation, we’d experience rapid economic growth.

Most of all, I praise Scott for being the only respondent, of many, to actually try and explain why nominal wages are sticky.

As the argument is presented, I would respond: “There is talk of fixed NGDP and talk of a fixed total wage bill.  Both conditions are assuming away the possibility of an easy solution.  An unemployed worker shows up, he and the employer cut a deal, a job is created, monetary velocity goes up, NGDP goes up, and the Pareto improvement occurs.  To use a different terminology, velocity should be elastic with respect to available gains from trade and thus so is NGDP.  More concretely, referring to the current day, employers are sitting on plenty of cash.  There is nothing in the NGDP identities to prevent further hiring from that stash.”

You can read Scott’s not-easy to-summarize counter-response to a comparable comment of mine here.  I do not interpret it as defending the relevance of nominal stickiness over the longer run or even as hoeing to the above passage.  For instance Scott writes “the actual change in NGDP is a sufficient statistic for understanding the net effect of wage flexibility on NGDP, PLUS monetary policy on NGDP.”  I believe Scott could have more accurately written”: “the actual change in NGDP is a sufficient statistic for understanding the net effect of labor market and other coordination breakdowns on NGDP, PLUS monetary policy on NGDP,” removing wage stickiness from the sentence altogether.  We’re back to viewing wage stickiness as one component of GDP problems, without knowing how important wage stickiness for the unemployed is, which is precisely where we started.

A simple model of unemployment, wage stickiness and ZMP

Following up on yesterday’s discussion of wage stickiness for the unemployed and the employed (Tyler, Alex).

Imagine a farmer whose farm produces 100 bushels of wheat. He hires 10 workers to bring in the wheat, paying each of them 9 bushels. Thus, each worker carries 10 bushels, the wage is 9, the wage bill is 90, and the farmer earns 10.

Now suppose that due to climate change or a swarm of locusts the farm only produces 90 bushels of wheat. If wages were fully flexible then an equilibrium exists in which each worker is paid a wage of 8 leaving the farmer with 10 bushels as before. The farmer doesn’t want to reduce everyone’s wages, however, because that will reduce morale so he fires one worker leaving nine. Each worker now brings in 10 bushels, as before, and is paid a wage of 9, for a total wage bill of 81 leaving the farmer with 9 bushels. The unemployment rate is 10%.

The unemployed worker doesn’t want to be unemployed and offers to work for less, a lot less, say 5 bushels. Even at the lower wage, however, the farmer doesn’t want to hire the worker because the worker doesn’t generate enough additional output to justify even a low wage. In fact, in this scenario the worker has ZMP.

The best the farmer can do in response to the lower wage offer by the unemployed worker is to fire an employed worker and hire the unemployed worker at the lower wage. Eventually this will restore equilibrium but it takes time to cycle through enough firings and hirings to reach full employment. Note also that in this model the farmer only has a weak incentive to do this since in the equilibrium with 10% unemployment he earns 9, almost as much as before.  As an aside, also note that in my model the unemployed workers are simply unlucky (as I argued earlier). If they were to switch places with the employed, productivity would be just as high. The unemployed worker has ZMP but is not a ZMP worker.

Since the driving shock that lowers productivity in this model is a real factor (weather, locusts), this is a real business cycle model . That raises a very interesting point. The most that wage flexibility can do in this model is to restore full employment; wage flexibility cannot restore full output. Thus, the workers in this model have a very good reason to dislike wage flexibility. In the equilibrium in which wages fall the unemployed worker is better off by a lot but the 9 employed workers are all worse off than in the unemployment equilibrium.  In contrast, in a Keynesian model wage flexibility can restore full output not just full employment. Thus, and somewhat surprisingly, it’s easier to justify wage stickiness in an RBC model than in a Keynesian model since the gains from wage flexibility are so much higher in the latter!

Even in a Keynesian model along the lines of the Sweeney/Krugman babysitter model it will still be the case that lower wages by the unemployed don’t get you far enough to restore equilibrium–although as noted, we will need a coordination failure story in the Keynesian model since in principle everyone would be better off in that model with wage flexibility.

Facts about Houston

Kevin Williamson informs us:

The typical owner-occupied home in Brooklyn costs well over a half-million dollars. In Suffolk County it’s nearly $400,000. In Houston? A whopping $130,100. Put another way: In Houston, the median household income is 39 percent of the cost of a typical house. In Brooklyn, the median household income is 8 percent of the cost of the median home, and in Boston it’s only 14 percent. When it comes to homeownership, $1 in earnings in Houston is worth a lot more than $1 in Brooklyn or Boston. But even that doesn’t really tell the story, because the typical house in Houston doesn’t look much like the typical house in Brooklyn: Some 64 percent of the homes in Houston are single-family units, i.e., houses. In Brooklyn, 85 percent are multi-family units, i.e. apartments and condos.

Hat tip goes to Tall Dave, who also has blogged high-IQ dating.

Why did Texas create so many jobs?

Advance warning: this is not a post about Rick Perry!

Matt Yglesias writes:

My view is that Texas’ robust job growth is a consequence of its robust population growth

This is consistent with Paul Krugman’s column yesterday, and also consistent with Matt’s earlier writings praising Texas for not overdoing the zoning.  I agree, but I wonder who should be reassured by this answer.

I’ve read a lot of blog posts lately painting Texas as a low benefit, low Medicaid, not so great system of public education kind of state.  Let’s take this picture and run with it.  People are moving into the state, in fairly large numbers, and that suggests the state is doing something right (again, I’m not suggesting Perry has anything to do with this.)  By the way, Dallas-Fort Worth recently had 35 straight days of 100+ weather and that wasn’t even a record for the region.

I see four options:

1. Hispanics track other Hispanics to some extent, so if Hispanic population is going up, so is the population of Texas.  For sure, but this is by no means the entire population phenomenon.  Nor is New Mexico experiencing a comparably positive mobility effect.

2. Texas gets some policies right, some say low taxes, there is lots of debate here.  Sometimes conservative commentators argue that “being tough on the poor” is in fact good for the poor themselves, given “poor on poor” local externalities.

3. Texas gets right a lower-zoning policy, which leads to cheap rents.

4. People are moving to Texas because fossil fuel prices have been rising.  There’s something to that, but still those prices do not seem to predict employment in Texas, at least not in recent times.

Let’s treat #1 and #4 as exogenous to policy, for the sake of argument dismiss #2 altogether, and thus focus only on #3.  Is this a result progressives should feel happy about?

I am not sure.  There is no chance of Texas’s looser zoning being applied to Fairfax County; for one reason the “Mantua moms” (don’t ask) wouldn’t stand for it.  It’s not even an issue and it doesn’t matter which party is in power.  Those are the same Mantua moms who oversee and enforce one of the nation’s best public school systems.  Now, as a general matter, should the influence of the Mantua moms be stronger or weaker?

Well, we’ve decided to live with the Mantua moms, for better or worse.  The neighborhood is splendid, but boring, and the neighbors do not support good food.  Texas, it seems, doesn’t give nearly as much political power to its equivalent of the Mantua moms, for whatever reason (can anyone tell us why?).  That leads to cheaper land, cheaper housing, and inferior public school systems, not to mention better and cheaper food.  And poor people are voting with their feet to choose it.

I am well aware that marginal migrants do not necessarily reflect the preferences of the infra-marginals.  Still, I am not sure many of us should find this a comforting scenario.

I’m not sure that “don’t choose policies, choose interest groups” counts as a final truth, but it’s an interesting thought experiment to upset the usual ideological applecarts.

Sentences to ponder

Finally, even if Mr. Powdthavee is right about the unhappy effects of income comparison, you shouldn’t conclude that redistribution is the solution. Yes, you could fight inequality of income. But you could just as easily fight comparison of income. Instead of praising those who “raise awareness” about inequality, perhaps we should shame them, like the office gossip, for spreading envy and discontent. In the end, happiness research and history teach the same lesson: If you live in the First World, you should be very grateful for what you have. So cheer up!

That is from Bryan Caplan, here is more.  I am still giggling over this earlier post of Bryan’s; it gives you a good idea of my typical day.