Month: June 2012

Estonia fact of the day

There is no movie with the word “Estonia” in its title.

That is from Alexander Theroux’s new and interesting Estonia: A Ramble Through the Periphery.  Here is from one Amazon review:

It is one of the most hateful books I’ve ever read. There is even an entire chapter called “Why I hate Estonia”, and almost every sentence starts with “I hate…” Here’s how that chapter starts: “I hate the pointless cold. I hated the fact that most people are sour but consider that normal. I hated the ungrammatical ‘5,2 litre’ alcohol content comma, when it should be a period ‘5.2’ liter!”

The author is badly uninformed about the region.

Most of the reviews are one star, but so far I am enjoying the book, and for that matter the reviews.  I can’t vouch for all of the information.  Here is another recent controversy about Estonia.

Internet Killed the Porn Star

Free porn is killing the professional industry reports Louis Theroux in the Guardian.

Fees for scenes, not surprisingly, have taken a hit. “Some girls get $600 [£390] for a scene now,” the retired performer JJ Michaels tells me. “It might be $900-$1,000 for a big-name girl. It used to get up to $3,000.” For guys, rates can be $150 or lower [25 cents for every dollar a woman earns, AT]

Musicians have adjusted to declining music sales by increasing the number of live shows and porn stars are doing something similar:

It’s an open secret in the porn world that many female performers are supplementing their income by “hooking on the side”…For many female performers nowadays, the movies are merely a sideline, a kind of advertising for their real business of prostitution.

Many porn stars are now ZMP workers says Theroux:

“The way it is now, within five years I don’t see how there could be a professional porn actor,” Michaels tells me. It’s not easy to sympathise with the porn companies, which made so much money for so long by embracing a tawdry business and a dysfunctional work-pool. But it is worth sparing a thought for the legions of performers, qualified for nothing much more than having sex on camera, who have no money saved, and no future.

A pay what you want model worked for Radiohead but will probably not work for porn:

…it is difficult to see how a business selling hardcore movies and even internet clips is sustainable when most people simply don’t want to pay if they don’t have to. To many people, when it comes to porn, not paying for content seems the more moral thing to do.

Which are the best walking cities?

I will nominate London, Paris, and Buenos Aires as leading contenders.  New York is for me too familiar for me to judge objectively and so I exclude it.

Reasonable safety is a prerequisite, and then we have the following dimensions:

1. Chance of seeing a striking yet non-famous piece of architecture.  All three cities are strong here.

2. The right mix of broad boulevards and narrower streets.  Ditto.

3. The chance of spontaneously encountering good bookstores or excellent dark chocolate:  London wins the former, Paris and Buenos Aires win the latter.

4. Cheap, convenient cabs, and places to sit and drink sparkling water: Buenos Aires is #1 on these.

5. Strangers are willing to talk to you: Tough to call, though NYC would win hands down if it were in the running.

6. Strategic and frequent use of historic plaques: London wins; yesterday I saw “George Canning lived here” and “Clive of India lived here,” among others.

B.A. loses points for imperfect safety and also capital confiscation, though it has by far the warmest weather of the trio.  Overall I am inclined to pick London as first, perhaps because I prefer English to French for bookstores.  Paris offers fewer surprises, even if it has a higher average level of beauty.  Paris is also worse for spontaneous cheap dining in restaurants, though it has far better food stores for urban picnics.  Berlin is perhaps the best city right now for living, but it is too spread out, and with too many broad boulevards, to be the best walking city.  It is an excellent city to take a cab in.

Walking cities on the rise: Istanbul.  I suspect it’s long been splendid, it’s now reaping the gains of being modern.

Underrated walking cities: Moscow, Mexico City, Toronto, parts of northern England, Los Angeles.

Overrated walking cities: Budapest, Krakow, Munich.

Best city to take the subway through: Tokyo.

If I had to pick a fourth in line: Barcelona.

Why were we obsessed with flying cars?

David Graeber has a fascinating albeit uneven essay about our changing visions of the future, here is one excerpt:

Why, these analysts wonder, did both the United States and the Soviet Union become so obsessed with the idea of manned space travel? It was never an efficient way to engage in scientific research. And it encouraged unrealistic ideas of what the human future would be like.

Could the answer be that both the United States and the Soviet Union had been, in the century before, societies of pioneers, one expanding across the Western frontier, the other across Siberia? Didn’t they share a commitment to the myth of a limitless, expansive future, of human colonization of vast empty spaces, that helped convince the leaders of both superpowers they had entered into a “space age” in which they were battling over control of the future itself? All sorts of myths were at play here, no doubt, but that proves nothing about the feasibility of the project.

And this bit:

The growth of administrative work [in universities] has directly resulted from introducing corporate management techniques. Invariably, these are justified as ways of increasing efficiency and introducing competition at every level. What they end up meaning in practice is that everyone winds up spending most of their time trying to sell things: grant proposals; book proposals; assessments of students’ jobs and grant applications; assessments of our colleagues; prospectuses for new interdisciplinary majors; institutes; conference workshops; universities themselves (which have now become brands to be marketed to prospective students or contributors); and so on.

As marketing overwhelms university life, it generates documents about fostering imagination and creativity that might just as well have been designed to strangle imagination and creativity in the cradle. No major new works of social theory have emerged in the United States in the last thirty years.

Interesting throughout, as they say.  For pointers I thank Umung Varma and Kevan Huston.

The economy that is Singapore

At S$86,889 ($67,000) just for a permit, the total price of a Volkswagen Passat in Singapore is about the same as the median U.S. metropolitan home. A 25 percent jump in residents in seven years, coupled with the world’s highest proportion of millionaire households, has fueled a 10-fold surge in license prices over three years. The government said last week it will postpone plans to cut the number of permits available and slow traffic growth, responding to the outcry over soaring prices.

…A new 2012 Passat sedan made by Volkswagen AG (VOW), the world’s second-largest carmaker, costs about $152,000 in Singapore, including the license, according to classified ads website SGCarMart.com. The median price of a U.S. metropolitan area home is $158,100, National Association of Realtors data show.

So-called open-category permit, which can be used to buy any type of vehicle, reached S$92,010 in April, the highest since the end of 1994 when a record of S$110,500 was reached. At the latest auction May 23, the licenses went for S$86,889, compared with S$8,501 three years ago. The permits give the right to own a car for 10 years. The next auction is tomorrow.

Besides having to bid for certificates at auctions that are held every two weeks, Singaporeans also pay registration fees and taxes that can amount to 150 percent of the market value of a vehicle, according to the Land Transport Authority website.

There is more here, and for the pointer I thank Ken Feinstein.

Game theory and cross-border deposit guarantees

What was it that Jeff said?  Nonetheless this issue has been bothering me, especially after reading EconomistMeg.  Let’s say that “Germany” guarantees bank deposits in Spain.  But the guarantee cannot be unconditional.  That is, if Spain leaves the euro anyway and redenominates its bank deposits into lower-valued pesetas, Germany will not make the Spanish bank depositors whole.  For one thing the implicit liability is too large, for another Germany would be offering Spain a huge free lunch and relying too much on political pressure to stop subsidized exit from happening.  For yet another thing you cannot reward those countries which totally break the basic rules.

So the guarantee is actually “we cover your bank deposits against many contingencies, except the one we all fear the most.”

Could that work anyway?

Perhaps it depends on the motives for deposit flight.  If the motive is “I’m afraid that my bank in particular will fail, and I’ll be left in the cold before the whole system goes down,” the German guarantee may be worth something.  Such depositors, with such fears, will be reassured.

If the motive is “I see the whole domestic system going down, leading to peseta redenomination,” the guarantee won’t stop the bank run.  Or should I say “the non-guarantee will not stop the bank run”?

Thinking about this problem makes one less optimistic about the prospects for a cross-border deposit guarantee.

Another issue is that the Netherlands, Slovakia, Finland and others may not feel the same “responsibility rights” as Germany when it comes to “saving the eurozone.”

Thoughts on how to avoid another Great Depression

This is another excellent Martin Wolf column, read the whole thing.  Here is one excerpt:

Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events. Perhaps the panic will vanish. But investors who are buying bonds at current rates are indicating a deep aversion to the downside risks. Policy makers must eliminate this panic, not stoke it.

I believe people should take more seriously the notion that the ECB will remain hopeless, and that the crisis can only be addressed by some kind of joint US-German-UK-toss-in-the-other-sound-countries radical multilateral move.  Which is not to say I am predicting that.  But at least in principle, those three countries can get something done and they also have stronger common interests than those across the eurozone, sorry to say.

Just to make the comparison biting, what if we postponed the costly benefits part of ACA for a year (it may be struck down anyway) and send $200 billion directly to Spain and its banks?  Is more money needed?  Use this as an excuse to get rid of farm subsidies and cut defense spending.  Surely the Germans would then chip in too, and perhaps even the Chinese, if we made the donors club sound exclusive and toney enough.  Drop hints about various silly islands (not Taiwan).

Have the new QEwhatever driven by purchases of Spanish mortgages.  If they keep the money abroad, we lose only the cost of the paper or the electronic bookkeeping entries.  If they buy American goods and services with it, consider it QEwhatever as applied to American exports rather than mortgage paper.  No liquidity trap there, and the Fed doesn’t itself have to choose which exports to buy.  Combine with the Fed’s FX swap facility in some kind of nefarious way, and we can invent four or five new acronyms.  And so on.  We would still have a long, grinding worldwide recession but perhaps much less of an AD collapse with it.

I understand that Obama may not be the binding constraint here, but is he even thinking about pulling this off?  Is he sitting around wishing for it?  Is anyone talking to him about these options?

How close is the UK to potential output?

Paul Krugman draws our attention to this very interesting 98-pp. paper by Bill Martin and Robert Rowthorn (pdf here, also see this Martin Wolf column).  They argue that the current problems of the UK are almost solely demand-based, that the UK’s supposed productivity problem is much overstated and shows up in measurement largely due to labor hoarding, and that observed inflation is due mostly to import price shocks.  There is more, so dare I suggest you read the whole thing?

I have a few points, which I will put under the fold…

1. The authors write: “There is an effective demand failure, high unemployment and, within companies, under‐utilisation of the employed workforce – a form of “labour hoarding”.”  This implies radical deflation for competitive industries (MC = 0), which does not seem to be the case.  Alternatively, it could imply no productivity decline for the more competitive industries, which also does not seem to be the case.

2. Real wages in the UK have been falling, post-recession.  In the pure Keynesian view, how much further must they fall through monetary stimulus to restore full employment ?  Isn’t this ultimately also a pessimistic view about UK productivity?

3. The authors acknowledge that worker productivity has fallen, but they blame this on cheaper labor, and view it as a symptom rather than as a cause.  I doubt if you can fill most of the box that way, as efficiency wage effects are unlikely to be so large.  In any case their mechanisms here are not very clear.  Furthermore wouldn’t the story imply that further stimulus, by lowering real wages, would lower productivity even more?

4. The whole argument rests upon worker willingness to accept lower real wages (and lower nominal wage acceleration) in response to external shocks (see pp.32-33 on how nominal fits into the story and how the authors clearly assume considerable wage flexibility).  Keynesians are otherwise suspicious of this kind of premise, and the real wage decline doesn’t seem to have just come from unseen price inflation.  So why suddenly accept a wage flexibility assumption from these guys?  And if that premise is accepted, why believe in such a big role for demand shocks?  The basic story doesn’t fit together, and it doesn’t fit with Krugman’s own views.

5. Citing “import price shocks” as an explanation for recent UK inflation isn’t actually different from citing “supply side bottlenecks.”

6. This is more speculative: the UK boom of the oughties possibly can be understood as a joint boom of supply and demand, rooted in multiple equilibria.  Investors have since reevaluated which equilibrium the UK “belongs” to.  The “British story” just doesn’t seem so exciting any more, Jubilee or no Jubilee, and the credit rationing from the banks reflects this.  A response to a very large shock can in fact reveal lots of information about future prospects.  The authors don’t give much shrift to forward-looking theories and mechanisms.  (By the way, maybe you don’t like multiple equilibria stories, but as I read the paper the authors also seem to be relying on one for the labor market wage-productivity link, though again I wish they would spell out their story more formally.)

7. Labor hoarding in the U.S. seems to have gone down a great deal, so it is odd to invoke it as the decisive factor to explain the UK data.  It’s declining in popularity as an explanation more generally, and I don’t see what the authors do to resurrect it.

8. There were plenty of new hires after the recession ended; why didn’t firms just reallocate their surplus “overhead” labor that was being hoarded?  The discussion circa p.37 doesn’t convince me, as it doesn’t face this question head on.

9. The effects of the credit bust are both demand-side and supply-side, and also suggest maybe that isn’t the key distinction here for the UK.

Let’s try a few general points:

10. There are admittedly some puzzling features of the recent UK economy, most of all how much real wages have fallen.  But they are puzzles for all major theories, not just the supply side theories.  Since this is a real wage decline, I tend to think supply side stories are going to have a big role here.

11. It is very likely that AD is a problem, but we just don’t know how large the UK output gap is.  Given that, it is fine to call for credible nominal reflation, just don’t get your hopes up too much or oversell it.

12. This paper makes one more agnostic by stressing the unreliability of the data (such as business capacity surveys, which don’t suggest a lot of excess capacity).  It doesn’t have a coherent demand-side story which fits the cited data, much less a demand-side story consistent with Krugman’s arguments and models.

Cheating and Signaling

The Chronicle of Higher Education has an article on cheating in online courses and some of the high-tech measures being used to detect such cheating:

As the students proceeded, they were told whether each answer was right or wrong.

Mr. Smith figured out that the actual number of possible questions in the test bank was pretty small. If he and his friends got together to take the test jointly, they could paste the questions they saw into the shared Google Doc, along with the right or wrong answers. The schemers would go through the test quickly, one at a time, logging their work as they went. The first student often did poorly, since he had never seen the material before…The next student did significantly better, thanks to the cheat sheet, and subsequent test-takers upped their scores even further. They took turns going first.

…”So the grades are bouncing back and forth, but we’re all guaranteed an A in the end,” Mr. Smith told me. “We’re playing the system, and we’re playing the system pretty well.”

…A method under consideration at MIT would analyze each user’s typing style to help verify identity, Mr. Agarwal told me in a recent interview. Such electronic fingerprinting could be combined with face-recognition software to ensure accuracy, he says. Since most laptops now have Webcams built in, future online students might have to smile for the camera to sign on.

Some colleges already require identity-verification techniques that seem out of a movie. They’re using products such as the Securexam Remote Proctor, which scans fingerprints and captures a 360-degree view around students, and Kryterion’s Webassessor, which lets human proctors watch students remotely on Web cameras and listen to their keystrokes.

The cheater-detector arms-race is interesting but also makes me think about the signaling theory of education. Cheating works best if the signaling model is true. If education were all about increasing productivity and if employers could measure productivity then cheating would be a waste of time. As illustrated by Mr. Smith, however, at least some students care about the A that cheating produces more than the knowledge that learning produces. Mr. Smith must believe either that education (in at least this class) doesn’t increase productivity or that employers don’t learn about productivity. Employers have big incentives to learn about productivity so my bet is on the former.

If students perceive the situation correctly we also have an interesting hypothesis: students should cheat more in those courses that offer the least productivity gains. Studies on cheating find mixed results across major, with some finding that business majors cheat more and others not, but these studies are cross sectional, i.e. across individuals. A better test of the theory that I propose would look at cheating by the same individuals across courses. Absences should also be higher in courses with lower productivity gains.

Gallego travel notes

The ATM gives you a choice of eight languages, including Catalan, Gallego, Valencia, and Euskara.  At first the street signs appear to be in Portuguese, but that is a trick.  Other times the dual Spanish and Gallego phrases on the signs are exactly the same.

Gallego as a province [Galicia] reminds some of Nantes, France, and the surrounding area, or of parts of southern Chile.

If you put together Keynesian economics and public choice theory, you get a very nice and indeed downright spacious airport in Santiago de Compostela.  More infrastructure here will not jump start growth.

Counterintuitively, Santiago avoids the destruction of its authenticity by relying on tourism.  The city has been a major tourist destination since at least the 9th century A.D., so the arrival of tourists — many of them have religious motives — is how the city’s past is preserved.  It is the people who stay at home who are ruining the place.

Vigo, the largest city in Gallego, has lovely sea views, lots of refrigeration facilities in its port, and superb seafood.  It is slow on a Sunday, especially for its size.  Percebes looks like this, and it is a must-try.

“A Coruña is one of only eight pairs of cities in the world that has a near-exact antipodal city.”  That would be Christchurch, New Zealand.  A Coruña is supposed to be the most prosperous city in Gallego, yet it is scary how many abandoned or boarded up buildings are in the heart of downtown.

The city’s Roman lighthouse is still in use, and it is the world’s oldest active lighthouse.

It is very green in Gallego and it rains a lot, though not as much as in Bergen, Norway.

I strongly recommend a trip to Gallego.  There are numerous reasons to go, and few reasons not to go, the only really good one being that you may wish to go somewhere else.