Month: July 2012
The story is interesting throughout, I liked this bit:
Adrienne Staples, mayor of the South Wairarapa District Council, recalls that being her first reaction when told in early February that a supposedly famous filmmaker had bought farmland in her zone.
It was not a particularly easy day for Ms. Staples. An avid horsewoman, she was trying to impregnate a mare with semen being flown to Wellington from a Spanish stallion on the South Island. She drove across the Rimutaka Range, twice, to get the semen; juggled calls from the press; and offered to bake Mr. Cameron a cake, because, after all, this is rural New Zealand.
Here is one bit from a very good FT piece, “The caustic soda connection,” by Merryn Somerset Webb:
Huge credit growth and some whopping pumping up of the property bubble. By 2011 residential real estate made up nearly 10 per cent of GDP, 14 per cent of the workforce was in construction and China was using up more cement per capita than even Spain at the peak of its construction bubble. Prices were soaring: global investment management firm GMO’s Edward Chancellor points to a 2010 NBER study that showed house prices up 140 per cent in three years in the biggest Chinese cities. Everyone with any cash or any way of getting any cash owned houses: even on official estimates 18 per cent of households in Beijing owned two or more properties and 40 per cent of flats in the major cities were being bought not for use but for investment. They were often left vacant. Overall numbers from Eclectica Asset Management suggest that China has spent twice as much as the US on its property bubble, relative to the size of its economy. Not bad, given what has happened in the US since.
The boom has infected the entire economy. Chancellor reckons that around 35 per cent of bank loans are “directly or indirectly related to Chinese property”. Local governments have also taken out huge loans backed by land grants to finance their increasingly extreme-looking infrastructure projects, while on some estimates a good 50 per cent of China’s GDP is linked to the property market one way or another. That makes it pretty much the biggest emerging market property bubble ever.
From The Economist, here is a much more optimistic view.
Having just been in Beijing, I would say that a visit here probably will not change the views of most people, I mean even more than is usually the case,. Virtually everyone agrees there is a real estate bubble and considerable excess capacity in China. (In contrast, I see factual disagreement about how serious underlying provincial and trust-based debt problems are.) The question is what you think that means, given that the Chinese government, unlike say the ECB, will pull out all stops to try to keep things on track. Check back with me in a year or two…
Sometimes markets in everything surprises even me. Who knew that the market for human hair entangles the Russian mafia, Indian mystics, and Paris Hilton’s “precious.” Here is one bit:
In the state of Andhra Pradesh in southeastern India is a cluster of seven hills. Perched atop one is Tirumala Venkateswara. Dating back nearly two thousand years, it is the most visited religious site in the world. With attendance three times that of the Vatican, Tirumala hosts nearly 20 million pilgrims a year. About half are women participating in a ceremony they hope will bring good luck. Perhaps they still haven’t found a husband. Perhaps their child is sick. For their luck to change, they believe, a special action is required.
So, after waiting in a queue that is miles long, 25,000 women each day mount the steps of a special building. Inside sit some six hundred barbers. The women bend over and, with a few deft strokes of a straight razor, the barbers shave off their hair. The hair used to be thrown away. These days, if it is virgin — that is, never colored, never processed, never cut, having cascaded from her head two or three feet or more — it will have a significance that is not merely spiritual. It is auctioned to licensed peddlers; this past year Tirumala held several online auctions, in one day reaping $27 million. Peddlers sell the hair to exporters, who sell it to manufacturers, who process it and sell it to distributors, who sell it to salons, who attach it to the heads of millions of Western women. Removing the hair had been a means of ego eradication; adding it serves now as an ego boost.
Hat tip: Daniel Lippman.
It’s not very glorious or motivational, but here goes: the costs of inflation, within reasonable ranges, are not very high.
I am more agnostic about the gains from monetary expansion than are many of its advocates. I think we do not know where the point of “potential output” lies, I think sticky nominal wages (especially for new labor market entrants and the unemployed) are overrated as a problem, I doubt the ability of the Fed to make credible commitments at this point, and often I view “hiring” as more of an multi-dimensional investment and longer-term commitment, which requires various variables to be set at the right places, not just the short-run real wage in spot markets.
A bit more personally or perhaps psychologically, the contrarian in me gets nervous when I read the ongoing ritual excoriation of Ben Bernanke in the blogosphere, every time the Fed decides to take no further major action.
Still, at the end of the day if we try further monetary expansion and it fails to stimulate employment, I don’t see a huge social cost to having a three or four percent rather than a two percent inflation rate.
And he remains very much needed.
Two-thirds of all patent claims in Europe are now filed in Germany, according to the Munich law firm Meissner Bolte, which does patent litigation. In a sense, Germany has become a destination for fast, effective one-stop patent challenges, much as Britain is for libel and the state of Delaware is for registration of American companies.
Here is more, and for the pointer I thank Alex T.
Look for the hutongs (traditional, alley-based neighborhoods) which are not too far from the wealthy areas, but not right on top of the wealthy areas either. At the outer “lip” of those hutongs there will be numerous small restaurants and food stands, serving a mix of hutong residents and passers-by. A typical small restaurant of this kind might have five to ten tables, plus there may be some larger establishments, comparable in size to small restaurants in the United States. There also will be dumpling, kebab, fish, and other stands facing onto the street. Eat in these places and sample as much as you can. There will be superb snacks for less than a dollar, and in the small restaurants superb main courses for less than two dollars, and in the larger restaurants superb main courses for less than five dollars.
Try an expensive place in a fancy hotel. Eat Yunnan food, preferably at a place with a fixed price menu. “Dali” is a very good one. Eat “Chinese Muslim food.” Eat Sichuan and Hunan. Don’t worry too much about duck, the classic Beijing dish is a little boring. Dumplings are better here but dumplings get only so good (which is very good indeed but the gradient isn’t that steep). Don’t neglect breakfast as an important meal.
That is how you eat well in Beijing.
Paul Krugman and Brad DeLong have criticized Tyler (original and reply) on income mobility. In an effort to clarify, let us consider some simple societies. In each society there are three families, A,B,and C, each with two generations.
In society one there is no generational mobility, each generation has the same income as the previous generation. Let’s call this society Stasis.
|Family||Generation 1||Generation 2|
In the second society, some generations rise and some generations fall but there is no growth, let’s call this society Churn.
|Family||Generation 1||Generation 2|
Brad DeLong thinks that Churn is “unambiguously” better than Stasis but he doesn’t tell us how he arrived at this conclusion. Paul Krugman also seems (it is a bit unclear) to think that Churn is better than Stasis and he adds that anyone who thinks otherwise is anti-American.
If someone likes the idea of riches going to rags almost as much as they like the idea of rags going to riches then I can see why they would think that Churn is unambiguously better than Stasis. In economics, however, we try to evaluate outcomes with more than our aesthetic preferences or moods and when we look more carefully at the preferences of the people in these societies I see ambiguity or, to be more precise, not much to choose between Stasis and Churn.
The most obvious metric is total aggregate utility and in a static sense total aggregate utility is identical in each society and in each generation. So not much to choose between Stasis and Churn on aggregate utility grounds. What about an individual choosing which society to join from behind a veil of ignorance? Again, no go, there is no difference in expected utility between Stasis and Churn from behind the veil of ignorance.
Tyler moves beyond static utility to consider some dynamic issues which could make Churn worse than Stasis, namely “habit formation and frame of reference effects.” I can see those possibilities but in my view they don’t resolve the tie.
We might resolve the tie by adding more considerations to the model; for example, perhaps society Churn has more liberty (desert/justice etc.) and that is why it churns. In this case, I personally would break the tie in favor of Churn but then the deciding factor would have been liberty not mobility. Thus, let’s keep the focus on mobility and look at one more society.
Let us consider a third society, Growth.
|Family||Generation 1||Generation 2|
Here at last we have some non-ambiguity. Growth is better than Stasis or Churn; aggregate utility is increasing over time and indeed every family is better off in Growth than in Stasis or Churn. Notice, however, that Growth has relative stasis, that is, there is no relative generational mobility. So now we come to the crux of the issue. Suppose that you agree with me that there isn’t much to choose between Stasis and Churn and that Growth is better than either Stasis or Churn. Do you want to add some Churn to Growth? Why? If there isn’t much difference between Stasis and Churn then how can adding Churn to Growth make it better? It doesn’t and that is why economic mobility measures are overrated. What we should care about is growth.
It remains neglected, even today. Yet Martin Fackler is on the case when it comes to Japan (or try this link):
By speeding the flood of less expensive imported products into Japan, the strong yen is contributing to a broader drop in the prices of goods and services, known as deflation, that has helped retirees stretch their pensions and savings. The resulting inaction on the yen, according to a growing number of economists and politicians, reflects a new political reality, with already indecisive leaders loath to upset retirees from the postwar baby boom who make up nearly a third of the population and tend to vote in high numbers.
‘‘Japan’s tolerance of the strong yen and deflation is rooted in a clash of generations,’’ said Yutaka Harada, a professor of political science and economics at Waseda University in Tokyo. ‘‘And for now, the seniors are winning.’’
The problem, many economists warn, is that the victory comes at a high price, mortgaging the future by hastening the hollowing out of the economy as companies move abroad, and contributing to the deflation that has already exacerbated a nearly two-decade decline in Japan. It may also, ultimately, be self-defeating, threatening the very industries that created the huge trade surpluses sustaining Japan’s still comfortable living standards.
How many major political battles do the elderly actually lose? I get a little worried about the conflation between nominal and real, and the blurring of short- vs. long-run time horizons, but still this is a point worth making:
‘‘The strong yen robs from youth, but there is not much awareness here yet of generational inequalities,’’ said another lawmaker, Keiichiro Asao, with the opposition Your Party.
China’s internet economy reached CNY 94.34 billion in the second quarter of 2012, a year-on-year increase of 66.1%.
That is from Izabella Kaminska, citing Chinascope.
True, Cowen isn’t advocating a complete caste society — but it’s actually not clear why, since he is suggesting that we’ll be happier as a society if people stay comfortably in the class into which they were born.
He compares my position to this poem:
The rich man in his castle,
The poor man at his gate,
God made them high and lowly,
And ordered their estate.
Uh, no. What I wrote was that for fixed levels of income there was no gain per se from having a higher rate of mobility churn, if not accompanied by higher standards of living. I also wrote that the best way to get useful upward mobility was to have a high rate of economic growth and spread across many income classes. Think of it as the difference between positive-sum notions and metrics of mobility vs. zero- or negative-sum notions and metrics. Read my first point:
If the general standard of living is rising (and I am more than willing to admit problems in this area for the United States), mobility takes care of itself over time. I find it more useful to focus on slow growth, if indeed that is the case. Just look at income growth for non-wealthy families and that is more useful than all the mobility measures put together.
Or read my follow-up post:
I see two big and very real problems: slow income growth for many income classes and a problem with excessively high returns to finance at the very top.
Let’s put it this way. Paul Krugman is a great economist. But of all the people in my RSS feed, in terms of his quality and skill as a reader, he is not in the top 90 percent.
A while ago Bryan and Arnold had an interesting exchange as to whether on-line education might ever “flip” into being a higher-status signal than is currently the case. A conversation with Karina points me to one interesting example of a signal status flip, this time from Beirut (and possibly other places as well?):
Apparently, here in Beirut, nose jobs have become so popular that those who cannot afford them, or don’t even actually need them, can still opt to wear bandages across their nose…to fake a nose job. Yup. The newest trend to hit the Beirut fashion scene is the post-op nose bandage.
There is a bit more here.