Month: September 2011

Assorted links

Free disposal?

The [Illinois] law allows parents of babies less than 30 days old to relinquish them, no questions asked, at police stations, fire houses and hospitals.

A good law, I say.  And yet:

Despite the new law and successful adoptions, problems persist. Including the Bloomington newborn, 63 babies have been abandoned illegally during the last 10 years, nearly as many as were taken to the safe havens. They were left at churches, along roadways and, in some cases, thrown in garbage cans. Of those, 30 died before someone found them.

The story is here.

Leveraging the EFSF

I’ll repeat this link for background.  I would feel better about the idea if the context were: “We can always go back to the trough, but leveraging the fund is the easiest way for us to strike quickly and decisively.”  Instead I see too much of: “We can’t get any more from our taxpayers, so we’d better stretch this one as far as we can.”  That’s just inviting the speculators to set up camp against you.

Who will fund the leverage?  BRICS?  American investors?  Ultimately other Europeans?  All of those parties already can construct their own leveraged positions in Italian government debt, if they wish.  So presumably the leverage will be a hidden subsidy to the financiers, one way or another, to get them to participate.  Subsidizing the debt buyers, rather than guaranteeing the debt (admittedly that may be impossible and undesirable for Germany), hardly seems like the way to go.  You bear the costs of the bailout without any assurance it will work.

This German-language video suggests many of the German representatives do not know what they just voted for.

You’ll find lots of good comments on Twitter, and here.  How about this take?:

“Germany voted for the EFSF extension. Greece celebrated by going on strike.”

Larry Kotlikoff on wages and sarcasm

He wrote:

Some prices and wages are set too high, thereby damping demand for output and for the workers needed to produce it. This is the standard sticky wage and price explanation for our economic malaise offered by Keynesian economists such as Paul Krugman and James Galbraith. I think there are fewer markets suffering from this problem than Krugman and Galbraith do, but there are enough such markets to make the case for government intervention. Indeed, the president should put these economists in charge of identifying the markets suffering from this problem and helping their participants set market-clearing prices and wages.

Via Mark Thoma, Jamie Galbraith objects to his cited role, and Paul Krugman piles on.  Three points:

1. Call me strange, but I read Kotlikoff as being sarcastic in this passage, especially in the last sentence, objecting to the pretense of knowledge which he sees as embedded in some extreme forms of Keynesian doctrine.  To respond to this criticism with a straight yet outraged face is to miss the joke and arguably at the same time to validate it.  Kotlikoff is not actually suggesting that Krugman and Galbraith rule a new wage and price commission (surely that proposal and its specificity is the giveaway, no?), or implying that Krugman and Galbraith see price flexibility as the answer to our macroeconomic problems.  He may, though, be wondering why they do not, which brings us to:

2. The “New Old Keynesians” repeat the Great Depression point that lowering wages will be destabilizing.  During the Great Depression, there was a large negative nominal shock, nominal wage reductions for a broad swathe of the employed labor force in response, and a downward spiral of wages and prices, at least for a while.  Fair enough, and one can model that coherently.  Today we are talking about trying to lower reservation wages for 2-4 percent of the wage force, namely some of the currently and non-naturally unemployed.  That is with a central bank which has set a fairly credible floor on nominal values.  To criticize these targeted (potential) wage cuts by citing the Great Depression, or relevant models thereof, is a non sequitur.  In fact it’s hard to find a good argument against such proposed targeted cuts; the best response is to cite excess capacity and claims the cuts won’t work but then they won’t lead to harm either.

3. Kotlikoff’s subsequent explanation of his stickiness point is on the mark and is not contested: “One example [of a stickiness] is the market for construction workers. A 1931 law called the Davis-Bacon Act effectively requires contractors using federal money to pay union wages. If the act were suspended or repealed, federal spending on much-needed infrastructure projects could create a lot more jobs. ”

4/5 of Kotlikoff’s piece is good.  I don’t like his idea of “…assembling in one room the CEOs of the largest 1,000 U.S. companies and getting them to collectively pledge to double their U.S. investment over the next three years.”  Does everyone have to double?  Relative to what benchmark?  What about the companies which are losing money or going under?  What happens if a company breaks its pledge?  Are they allowed to fly their private planes to the meeting?  Do those with the biggest pledges get to sit next to the President?  And so on.  In the longer run, I don’t think it helps to politicize investment decisions.

Singularity Summit

I will be speaking at the NYC Singularity Summit, Oct.15-16., and also debating TGS with Michael Vassar.  Other speakers include Ken Jennings on Watson (his new book on maps is suitably intense), Ray Kurzweil, Peter Thiel (his not on-line and excellent National Review cover story is the best introduction to his seminal views on stagnation, also note the Allison Schraeger piece, on financial innovation, in the same issue), and Sonia Arrison (I like her new book too, on aging).

Full information is here, including registration.  The code MARGINAL2011 will get you $100 off.

Capital and its structure, Haitian style

There are so many lessons in this story:

In one series of tests, the traditional stove took an average of 978 grams of fuel to bring a liter of water to boil, while fuel consumption among the newer models ranged from 479 to 591 grams.

Yet in a simple test of “time to boil” the traditional stove appeared to have a clear advantage over its fancier brethren. A pot of water was brought to a boil in 36 minutes on the traditional stove, while the four “improved” stoves were clustered between 51 minutes and one hour. This is a serious problem for the more efficient stoves. The researchers in the field found anecdotal evidence that Haitian cooks reject stoves if they are slow to boil.

“The traditional stoves are inefficient but cook quickly, because they put out more thermal power,’’ notes Kayje Booker, a UC Berkeley PhD student in Ecosystems Research, who was a member of the field research team. “Even some of the respondents who had tried the more efficient Mirak stoves to save charcoal had gone back to the traditional stove because it cooks quickly.”

More efficient stoves were often also plagued with design problems, such as holes that would become clogged during cooking, diminishing airflow and efficiency. “The traditional stove has the benefit of simplicity,’’ says Booker.

Here is the full article, very interesting, and here is the underlying study.  In some alternate universe, I would live in Haiti, be independently wealthy, and blog it full-time.

For the pointer I thank Ken Feinstein.

Henry Farrell’s public choice theory of the EU

In the EU, the instinct is always to fudge — to come up with technocratic fudges that are incomprehensible to the outside world but get some minimum consensus among states…But the problem is not a technocratic problem. It’s a political problem. So they’re going to hesitatingly help out the Greeks, but it’s not going to provide political actors or market actors the confidence I think they need.

Here is more.

Bounty Hunters in Korea

Fascinating article in the NYTimes about Korean “paparazzi,” camera-wielding bounty hunters who film people committing small crimes and then turn the evidence in for a bounty:

The opportunities are everywhere: a factory releasing industrial waste into a river, a building owner keeping an emergency exit locked, doctors and lawyers not providing receipts for payment so that they can underreport their taxable income.

Mr. Im’s pet target is people who burn garbage at construction sites, a violation of environmental laws.

“I’m making three times what I made as an English tutor,” said Mr. Im, 39, who began his new line of work around seven years ago and says he makes about $85,000 a year….

The outsourcing of law enforcement has also been something of a boon for local governments. They say that they can save money on hiring officers, and that the fines imposed on offenders generally outstrip the rewards paid to informers. (The reward for reporting illegal garbage dumping: about $40. The fine: about 10 times as much.)

For most infractions, rewards can range from as little as about $5 (reporting a cigarette tosser) to as much as $850 (turning in an unlicensed seller of livestock). But there are possibilities for windfalls. Seoul’s city government promises up to $1.7 million for reports of major corruption involving its own staff members.

The system appears to work well, if you take the goals as given. The goals, of course, are where the trouble lies. Tax-farming was efficient but was it a good idea? (Is it a good idea today in developing countries? Compare here with here and consider a recent proposal for tax farming in Greece.) Private prisons reduce costs but given the law of demand how much do we want to reduce the price of imprisoning people?  (See Bruce Benson’s paper in my book, Changing the Guard.) All else equal, it’s more efficient to tax goods with inelastic demands but give government the right to tax such goods and all else will not be equal, leviathan will tax more.

The bounties, however, are only part of the issue. More fundamentally, what we are seeing is the ubiquity of surveillance. I have mixed feeling about this transformation but given technology it is inevitable. What we can do, however, is to ensure that the surveillance goes all ways. The government surveils us both directly and with the help of the junior bounty hunters but we must guard our rights to also surveil them.

Hat tip: Maxim Lott.

Russ Roberts asks for a response on TGS, plus some all-purpose responses to queries

Read the whole post by Russ, but here is one excerpt:

So my challenge to Tyler is to tell me what he thinks the stagnation in median income signifies. Has there been a change in the returns to education or creativity? Or is it mostly a statistical artifact? Whichever answer he gives, I would like to see him reconcile it with the panel data–the surveys of economic information that follow the same people over time.

I will put the rest under the fold…Russ makes points about household size and immigration and there are brief mentions of CPI bias and rising benefits.  A few responses:

1. I discuss household size in the footnotes to TGS.  Adjusting for it doesn’t make a huge difference and furthermore the rapid-median-income-growth 1960s were a time when household size was falling quite rapidly.  I blogged some of the details here.

2. Immigration doesn’t seem to shift the median enough to create an illusion of stagnation, I blogged the numbers and details here.

3. CPI bias has likely fallen over time, which will make the true median income growth differential over time even greater than the numbers indicate.  Furthermore CPI measures are getting better over time and doing more to adjust for quality biases; that’s further bad news.  Most of all, a lot of CPI bias is offset by ‘wasteful spending on health care, education, defense, and government yet all counted in gdp” bias.

4. Russ doesn’t mention the internet but it’s getting more monetized — and thus more counted in gdp — all the time.  The consumer surplus of the unpriced parts, once you eliminate double-counting, probably isn’t much more than two percent of income.  Not “two percent growth a year” but two percent period.  I could see it being three or four percent, for sure, but that still won’t overturn the basic slowdown.

5. Rising household debt and abysmal job creation since 2000 suggest to me that the quantity data are in line with the incomes data.  Around 1999-2000, stagnation suddenly becomes much worse.  The only good years since then are the bubble years, whereas across 1973-1998 there are some truly good economic years (partially offset by some very bad ones).

6. 1995-1998 are a poster child for what a non-stagnating period should look like in terms of wages and median income.  Lots and lots of years since 1973 don’t look anything like that period.  When the growth is real, it shows up in all of the standard numbers and no mystery variables or invocations of biased measurements are needed.  I find this comparison illuminating.

7. I discuss benefits in the book, for the time being I’ll note a) cradle-to-grave private sector jobs, with union-based pension benefits are rarer than they used to be, b) fewer people get health care through their jobs than used to be the case, c) most of the benefits are health insurance but don’t fixate on the size of the expenditure, rather consider that health progress has been slowing down, and d) last year health insurance costs rose by nine percent and no way should that be interpreted as equivalent to an increase in real income, rather it is a sign of system failure.  That all said, the text of TGS still leaves room open for a world where virtually all of the benefits of economic growth accrue to the elderly.  Such a world still will have a lot of TGS properties.

8. Consumption data often selectively focus on the commodities which have become much cheaper (e.g., flat-screen TVs) and ignore the growth in debt, which now must be paid back.

9. The 2000-2011 case for stagnation is stronger and clearer than the 1973-2011 and there also has been more growth along the latter and longer period of time, plus numbers are easier to interpret across shorter time stretches.  I will ask Russ if he at least can buy into TGS for the last eleven to twelve years.

I don’t see panel data as offering a significantly different story from the above but if Russ tosses me a specific citation I will consider it.

On the Conover critique of income stagnation, Karl Smith is devastating.  On all the general issues, Arnold Kling comments.

Going back to the Russ excerpt above, I don’t think we should reify median income statistics or give them a final ontological meaning; they are tools.  The slow growth in the measured median, or zero growth since that late 90s, strongly suggests that something is seriously wrong with the real economy.  That slowdown seems robust to the standard attempts to explain it away.

I don’t dismiss Arnold Kling’s factor price equalization hypothesis, but still the question remains why we haven’t kept leapfrogging ahead of our competitors, as we had done in earlier decades.  We’ve become much more of a sitting duck and that will make Samuelson-Stolper effects stronger if you are the world leader on the technological frontier.

On Russ’s other query, there has been an ongoing change in the returns to education.  Note the recent study that over the last decade only Ph.ds, MBAs, JDs, and MDs have seen real income gains; even individuals with a Masters degree are getting whacked.  One way of reading those numbers is that the workers with lower educational credentials are getting less “manna from heaven” in the form of new innovations cascading into their laps.  On top of that, there is more rent-seeking in the economy and many jobs require stronger cognitive skills than in the past.

New tech blog with stars

Shane Greenstein writes to me:

This email is to alert you to a new blog project established by myself, Joshua Gans and Erik Brynjolffsson —  We noticed that while there was plenty of commentary on technical issues there was, in fact, no blog exclusively devoted to the economics of the digital world. As we three blogged regularly about these, we decided to combine our efforts in this new forum. In addition to the new site we also have a Twitter feed @digitopoly.

Cole and Ohanian ask a good question about the Great Depression

The main point of our op-ed, as well as our earlier work, is that most of the increase in per-capita output that occurred after 1933 was due to higher productivity – not higher labor input. The figure [at the link] shows total hours worked per adult for the 1930s. There is little recovery in labor, as hours are about 27 percent down in 1933 relative to 1929, and remain about 21 percent down in 1939. But increasing aggregate demand is supposed to increase output by increasing labor, not by increasing productivity, which is typically considered to be outside the scope of short-run spending/monetary policies.

There is more at the link.

How many Borders are being replaced by other bookstores?

The article is interesting throughout, but here are, to me, the salient bits:

Vanderbilt University in Nashville is moving its bookstore to a 27,000 square-foot former Borders, betting that the new location on the perimeter of campus can serve students and residents in an area where several bookstores have disappeared.

… Although Books-A-Million has taken over leases for more than a dozen Borders stores, and Barnes & Noble is expected to acquire some of its intellectual property, like the Web site, there were few takers for the Borders leases offered at auction in recent weeks under the bankruptcy process. Bidders were required to take over the lease under the existing terms…

…One niche that has proved attractive is Borders’ airport locations. The Hudson Group has taken over at least nine former Borders stores at airports in Las Vegas, Baltimore, Newark, Boston, Washington Dulles and Raleigh-Durham, in some cases, turning over the space in less than a week.

The day may yet come when one takes a flight to have a satisfactory book-browsing experience.

Assorted links