Month: May 2012
What is austerity?
Or should that read what is “austerity”?
The May 11 IHT has a headline “German line on austerity appears to soften,” and the article is about monetary policy and inflation targeting (I don’t see it on line). While monetary policy has ramifications for fiscal policy and output, I would not refer to tight money as “austerity,” in spite of the mood affiliation.
I googled “austerity define” and Wikipedia reports this:
In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided.
Notice that is mostly about spending, and notice the word “and.” I find this definition confusing, especially if one interprets the “and” strictly. Tax hikes are then mentioned:
Austerity policies are often used by governments to try to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to reduce debt.
That seems to make the “tax hikes” something other than “austerity policies.” The Macmillan on-line dictionary makes it all about spending and not about taxes at all.
A financial source in the top ten, Investopedia, reports this:
A state of reduced spending and increased frugality in the financial sector. Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits.
That starts with spending, then shifts to the financial sector (?), and the second sentence shifts back to spending. That’s confusing too. How do higher taxes fit in? What are the baselines?
Krugman I do not think has offered a definition or measure of austerity (he spends more time doing a link-less attacking of others, including possibly myself, for claims about austerity which he does not document anyone making or they simply did not make), but he seems to think that automatic stabilizer-driven spending increases do not count as spending increases for the purpose of defining austerity. Neither does spending on bank bailouts count for him.
I could imagine a definition something like this: “the net effect of all government fiscal policies on ngdp, relative to the baseline of a stabilized path for expected ngdp growth.” Or should it read: “…relative to what will happen to ngdp growth in the absence of budgetary changes”? I wonder if some Keynesians have in mind the baseline of “the expansionary policies which I think would be appropriate,” in which case doing less than the Keynesian optimum is always a form of austerity. Angus notes correctly that clear definitions of austerity are hard to come by.
In Bucharest I cannot alas consult my library for further definitions.
In any case, austerity is a misleading and often misunderstood word. It is better if we describe policies more concretely, and in fact that is not hard to do. Furthermore, insisting on a clearer accounting should not be equated with “austerity denial.”
Assorted links
1. An old but still interesting Bertola and Drazen paper on fiscal policy (pdf): “We propose and solve an optimizing model which explains counterintuitive effects of fiscal policy in terms of expectations. If government spending follows an upward-trending stochastic process which the public believes may fall sharply when it reaches specific “target points,” then optimizing consumption behavior and simple budget constraint arithmetic imply a nonlinear relationship between private consumption and government spending. This theoretical relation is consistent with the experience of several countries.”
2. Should Greece default now or later?
3. Bahrain and Saudi Arabia to move toward a closer union.
4. 2005 me on the end of the euro; “It would be ironic if the strongest argument against the Euro was simply the eventual need to dissolve it.”
Greece fact of the day (but how many bullets did they fire?)
More than half of all police officers in Greece voted for pro-Nazi party Chrysi Avgi’ (Golden Dawn) in the elections of May 6. This is the disconcerting result of an analysis carried out by the authoritative newspaper To Vima (TheTribune) in several constituencies in Athens, where 5,000 police officers in service in the Greek capital also cast their ballot.
Here is more, via Chris F. Masse.
Genoeconomics
An interesting piece from the Boston Globe on “genoeconomics”:
Though the name wasn’t coined until 2007, genoeconomics flickered briefly into existence once before. In 1976, the late University of Pennsylvania economist Paul Taubman published the results of a study in which he followed the financial lives of identical twins, and found there were curious similarities in how much money they made as adults. Taubman concluded that between 18 percent and 41 percent of variation in income across individuals was heritable.
It was a startling conclusion, and one that Taubman’s fellow economists didn’t quite know what to do with. One joked that Taubman’s findings meant the government might as well shut down welfare, since clearly some people would remain poor no matter what.
….After Taubman, the idea that genes had an important role to play in decision-making was largely abandoned in the world of economics. But with the completion of the Human Genome Project in 2000, the first full sequence of a human being’s genetic code, people started wondering if perhaps it would be possible to push past broad heritability estimates, of the sort that Taubman generated, and figure out what part of a person’s genome influenced what aspect of his behavior.
…Over time, social scientists started coming to terms with the fact that even the most heritable of traits, such as height, were influenced not by one or two powerful genes, but by a combination of hundreds or even thousands—and that environmental factors, like a person’s upbringing, play a complex role in determining how those genes are expressed. “Every single direction has proved to be less promising than people originally expected,” said Laibson.
… hope lies in a new approach to data-gathering that is only just getting underway, wherein researchers look for patterns among thousands, and even millions of people—numbers that are only just becoming possible thanks to massive collaborations linking gene studies being conducted all over the world.
The researchers in question, Daniel Benjamin, David Laibson, David Cesarini and others, seem worried about the possibility of tracing attributes and behavior to genetics. Most of the big news is out already, however, and more easily observed in phenotype than genotype.
For more on the new approach see The genetic architecture of economic and political preferences.
Markets in Everything: Fashion Like
These hangers in a São Paulo store show in real-time the number of “likes” an outfit has received on the Facebook page of Brazilian fashion retailer C&A. I shudder to think how many likes my typical outfit would receive.
The internet of things is approaching rapidly.
Genoeconomics
Here is one paragraph of an interesting-but-treads-quite-lightly story about what is possibly a new field of economics:
To talk to the genoeconomists about their vision for the field is to listen to people acutely reluctant to overpromise, or to come off as naive. Much of their forthcoming paper in the Annual Review of Economics, in fact, describes how the vast majority of studies that appeared to link individual genes to specific outcomes—the amount of education people receive, whether or not they are self-employed, how they invest their money—have turned out to be impossible to replicate. Their hope lies in a new approach to data-gathering that is only just getting underway, wherein researchers look for patterns among thousands, and even millions of people—numbers that are only just becoming possible thanks to massive collaborations linking gene studies being conducted all over the world.
Jeff, the source, offers some discussion here.
Addendum: I now see in the blogging software panel that Alex has a post on the way, covering this same article, it should be up later today and maybe his take is different than mine.
Assorted links
1. Via Chris F. Masse, how large is the Chinese art market really?
2. The economics of HBO, and conditioning on a collider.
3. Good analysis of Spanish debt restructuring; “Should there be some form of Spanish sovereign bond restructuring, the amounts required to recapitalize the banks would be astronomical.”
4. Is the multi-year, multi-volume biography dead?
5. Banana battles, and how is America’s helium crisis developing?
Sentences to ponder
Given the complete “credit isolation” of Greece’s banks and the private sector from the rest of the Eurozone, the ECB is powerless to improve liquidity conditions in that nation.
That is from Sober Look.
Markets in everything
And while I knew that retired baseball players sell their autographs for $15 a pop, I had no idea that Pete Rose, who was banished from baseball for life for betting, has a Web site that, Sandel writes, “sells memorabilia related to his banishment. For $299, plus shipping and handling, you can buy a baseball autographed by Rose and inscribed with an apology: ‘I’m sorry I bet on baseball.’ For $500, Rose will send you an autographed copy of the document banishing him from the game.”
That is from Thomas Friedman.
One future path in development economics
Johannes Haushofer writes to me:
The Busara Center for Behavioral Economics is a state-of-the-art facility for experimental studies in behavioral economics and other social sciences, located in Nairobi, Kenya, and hosted by Innovations for Poverty Action, Kenya (IPA-K). Busara is open to be used by researchers and students from universities and institutions around the world. The core of Busara is a pool of participants from the Nairobi slums, combined with a cluster of 20 networked computers with which researchers can investigate economic behavior and preferences (e.g. trust/ultimatum/dictator/public goods games, time/risk preferences, priming studies, auction and market experiments, etc.). A central feature of the computer setup is that all computers have touchscreen monitors; together with specially developed paradigms, this allows for the participation of not only computer-illiterate, but entirely illiterate populations. The lab also includes a 20-person waiting room, 4 individual survey cubicles for private interviews, laboratory space for saliva and blood sampling (a phlebotomist is available), and desk space for visiting researchers and students. The subject pool will reach 1000 members by the end of May 2012; available demographic information for each subject pool member includes age, ethnicity, education, martial status, number of children, cell phone number, and fingerprint. Participants are invited for studies by SMS; once in the lab, their identity is verified by fingerprint, and after the experiment they are paid through the mobile money system MPesa. The weekly capacity of the lab is 200 participants, and studies are run by a team of 5 full-time staff. The standard experimental software is z-Tree, although other software packages can be installed upon request.
For more information on running studies at Busara, visit our website at www.busaracenter.org, or get in touch with Johannes Haushofer ([email protected]). We also invite you to find us on www.facebook.com/busaracenter, where you will find a few pictures of the lab.
The culture that is Germany
According to Germany’s Der Spiegel, German police shot only 85 bullets in all of 2011…As Boing Boing translates, most of those shots weren’t even aimed [at] people: “49 warning shots, 36 shots on suspects. 15 persons were injured, 6 were killed.”
In some cases the United States police manage to best that number while firing at a single suspect. The short article is here, the German-language source is here: “Unsere Polizisten sind keine “Rowdys in Uniform”. Of course not, they are too busy counting.
Assorted links
1. Via Robert Martinez, interview with Kevin Shields, on labor market hysteresis and other matters. Excerpt:
I’ve got my own studio, just down the road from here. And in the ten years I’ve had it, I’ve only used it in three of them. The other seven years it’s been empty. I feel quite sad about that.
But I made a few big promises to myself when I was a kid, about 17. And so far I’ve managed to keep them. I was discovering all this great music, and I kept noticing this pattern of bands making great records and then tailing off. I thought “I don’t want to ever do that.” If for some reason I can’t make a great record, I won’t make a record at all. Because all you get is a little bit of money, which goes really fast anyway. It’s easier to do nothing and live on nothing than it is to do something and live on something when you’re running around compromising.
It’s better to do nothing than to do bad work.
KS: I think so. It’s like, being on the dole is better than being in a shit job, so long as you’ve got an interest in your life. Because if you’re in a shit job you don’t really have that much more money, and then after a few years your will to live begins to dissipate. The idea that it’s good to do stuff just for the sake of doing it, it’s a myth, I think. It’s a lie. It’s a very 80s concept – everything, everything being about productivity.
Facts about JP Morgan
The banking unit of JPMorgan Chase alone made $12.4 billion last year. The holding company has over $2.26 trillion in assets and is the largest U.S. bank and 8th largest in the world. The holding company made $29.9 billion in operating income and just over $20 billion in net income for 2011.
So, this initial loss of $800M [TC: with more to come] represents approximately 4% of its total net profit for all of 2011, less than 2.7% of its operating income. Certainly it’s not a good thing. But the reported losses, in and of themselves, are not likely to have a dramatic impact on JPMorgan’s long-term financial stability.
Here is more, hat tip to Angus as well. A $2 billion loss is about one percent of their equity and about 0.1% of their assets.
Addendum: Sober Look adds a good point.
Not as easy as you might think (leaving the eurozone)
Controls on the movement of capital could be a nightmare for banks with loans in Greece, potentially making it illegal for companies to repay debt in euros.
Here is more, but that is the key point. One option is that the Greek government would prevent importers of food and fuel from paying in euros, but I would recommend against such a policy for obvious reasons. Another option is that the importers will be allowed to pay with euros, but then that is one easy way of getting money out of the country. I would expect that Greece’s “measured food imports” would rise rather suddenly, as invoices get reclassified, whether food actually is being imported or not. (If Greece cannot do a good job collecting its taxes, how well can it patrol its exports and invoices?) Then capital flight returns.
Under one scenario, Greece will experience both hyperinflation and hyperdeflation at the same time, depending on which medium of account one is measuring prices in. As Arnold Kling would say, have a nice day.
My favorite things Romania
1. Schubert pianist: Radu Lupu.
2. Conductor: Sergiu Celibadache. A high variance obsessive, Amazon doesn’t seem to carry his important recordings. At his peak he is one of the best conductors ever and can force a total rethink of the music upon you. He demanded so much rehearsal time, and so much perfection, that he was often impossible to work with. There is a short YouTube bit here.
3. Painter: I can’t name one, sorry. I have seen some nice folk art icon paintings on glass, see the image at the bottom of this post.
4. Sculptor: Constantin Brâncuşi, with a preference for Bird in Space.
5. Chopin pianist: Dinu Lipatti, especially the Waltzes.
6. Producer of maxims: Emil Cioran. I have enjoyed all of his books.
7. Poet: Paul Celan. I am surprised he is not more widely read in the United States. At his peaks I don’t think any 20th century poet is better or more important.
8. Novelist: Herta Müller, better in German than English, both linguistically and culturally.
9. Violinist: Georges Enescu, of course he was a composer too.
10. Mozart pianist: Clara Haskil.
11. Movie: I’ve tried a bunch of the famous recent ones, but I can’t get through them and this is from a man who gladly watched the entire 7 hour, 12 minute Sátántangó .
12. Former NBA basketball center: G. Muresan.
13. Economist: Nicholas Georgescu-Roegen.
The bottom line: There is some real beauty here, and aesthetic romance, but I don’t have a good theory for why novels and painting are not stronger.
