Month: August 2012

Economists who support the arts

by  Tyler Cowen in

Hi Tyler (we are Facebook friends),

I am working on a blog posting for my new blog (www.wormwood-and-honey.com) and I want to write about instances where economists supported the arts in some special way.  So far I have four cases:  Professor Norton T. Dodge and his support of the Russian avant grade artists; Professor Alexander Gershenkron for his great review of Nabokov’s abominable translation of” Eugene Onegin”, Professor Gregory Grossman at Berkeley for inviting and supporting the Polish poet Alexander Wat who dictated his great book “My Century” while visiting there; and lastly, John Maynard Keynes for his support of theater, ballet and dance.  Could you think of other cases?  Or articles/books on the subject?

Thanks,

Julian Berengaut

Richard Caves collects Picasso, Bill Landes collects Charles Burchfield, and William Baumol did a good deal of wood sculpture, but I do not know that any of them have served as patrons of living artists.  Assar Lindbeck also works as a painter, as does Robert Mundell.  Spencer MacCallum (not an economist but he has written on economic issues) has been an important patron and promoter of Mexican pottery, and my own patronage efforts in Mexico are discussed in my book on the economics of Mexican art.

Roderick Deane is a New Zealand businessman, economist, and a supporter of New Zealand artists.  Marie-Josée Kravis is an economist and also a patron of the arts, mostly for Canadian artists I believe.  Georges Menil, of the Menil family, is an economist in Paris.  Wayne Cox (not an economist) writes on tax issues and has been an important supporter and collector of Jamaican Intuitive art.  Henry Kaufman is an economist who has donated a good deal of money to the arts.  Henry Raeburn painted a portrait of 19th century economist Francis Horner, but it was paid for by Horner’s brother rather than by Francis.  Maybe there was a Beckerian or Coasian bargain behind the scenes.

Richard D. Bodig was a singer, scholar of Renaissance music, and also an economist.  How about this headline?: “Jazz singer Olesya Yalunina on how jazz freed her from a career in economics.”  Stephen Dubner used to play in a rock band.

That is what comes to mind.  Who am I missing?

Reihan Salam summarizes Charles Blahous

by  Tyler Cowen in

Roughly 49% of the fiscal deterioration relative to the expectations of the CBO circa its 2001 projections can be attributed to increased spending, 27% to the failure to predict the less-than-smooth business cycle perturbations of the decade, and 24% to tax cuts.

Here is more.  I have not myself worked through this calculation, but if you know of any good rebuttal to it, I will be happy to take a closer look and report back.  I believe it also does not include increases in state and local spending, which ultimately do tie back into the consolidated fiscal position of all U.S. governments as a whole.

The coming disruption in education

by  Tyler Cowen in

From a new article about on-line educational start-ups:

To drive home the point of just how cheap it is to be Quizlet, one of its executives asks me how much money the United States spends per year to educate a single student in K-12 education. About $15,000, I say. That’s more than what it costs us per month to host the entire site, serving millions, the executive responds. Quizlet has no sales force, a very small marketing department, and more than seven million monthly unique visitors. (There are about fifty million public school students in the United States.) Quizlet, in its busiest months, during the school year, is among the top 500 most visited sites on the entire Internet. Now they’ve expanded beyond flash cards. You can create study groups, convert your content into multiplayer games, and search for cards and games that other people have created. We think we can get to 40 million users, then 100 million, says the executive. The question that drives the company, he says, is this: How can we create amazing learning tools for one billion people? This is the way most of the people in the valley talk.

Matt Yglesias adds useful comment.

Imitation Ain’t Easy

by  Alex Tabarrok in

On the Syfy tv show Alphas one of the characters is able to see something once and learn it perfectly. Thus, she can learn a martial art, or how to fix a car, or how to speak a language just by imitation. This ability is rightly considered a superpower. Yet, in economic models it’s assumed that everyone has this ability.

Imitation, however, is difficult even when knowledge is freely available. In Launching I give the example of The French Laundry Cookbook which promises that with “exact recipes” and “simple methods” that “you can now re-create at home the very experience the Wine Spectator described as ‘as close to dining perfection as it gets.'” Yet despite exact recipes and simple methods we don’t see imitations of the restaurant twice named the best in the world popping up in Muncie, Indiana (trust me on that one).

Similarly, in Apple v. Samsung the jury found that Samsung copied Apple and indeed they copied Apple well enough to survive but nowhere near well enough to eliminate Apple’s monopoly power as Eli Dourado points out:

According to a recent article at Fortune, Apple sells 8.8% of mobile phones, but it has 73% of profits in the market. Samsung sells 23.5% of phones and earns 26% of profits. Everyone else is barely breaking even or losing money.

This does not look like a market in which Apple’s competitors are successfully copying it. It looks like a market in which Apple’s competitors are trying to copy Apple, and failing.

The point of patents is to incentivize innovation through a grant of monopoly. But what Apple’s success, pre-verdict, clearly shows is that in many markets, mobile computing among them, it’s a lot harder to copy innovations than you think. Apple’s real innovation is putting designers in charge and building a corporate culture in which everything is subordinated to making elegant products that people want to use. I’d like to see Samsung try to copy that, but I think the difficulty of doing so gives Apple all the monopoly it needs.

Father of HFT: Slow Down

by  Alex Tabarrok in

Thomas Peterffy is one of the pioneers of automated stock trading. From NPR’s Planet Money:

…The company he started, Interactive Brokers, does electronic trades on a mind-boggling scale. Forbes estimates his net worth is now over $5 billion.

Peterffy says automation has done some very good things for the world. It’s made buying and selling stocks much much cheaper for everyone.

But Peterffy thinks the race for speed is doing more harm than good now. “We are competing at milliseconds,” he says. “And whether you can shave three milliseconds of an order, has absolutely no social value.”

Here are previous MR posts on high frequency trading.

Are isolated capital cities worse?

by  Tyler Cowen in

From Filipe R. Campante, Quoc-Anh Do, and Bernardo Guimaraes (pdf):

We show empirical evidence that non-democratic countries with [geographically] isolated capital cities display worse quality of governance, as measured across many diff erent dimensions. We provide a framework of endogenous institutional choice that accounts for this stylized fact, based on the idea that autocratic elites are constrained by the threat of rebellion, and that this threat is rendered less eff ective by distance from the seat of political power. Broader power sharing (associated with better governance) means that any rents have to be shared more broadly, hence the elite has less of an incentive to protect its position by isolating the capital city. Conversely, a more isolated capital city allows the elite to appropriate a larger share of output, so the costs of better governance for the elite (the rents that would have to be shared) are larger. In equilibrium, a correlation between isolated capitals and misgovernance emerges as a result. The framework yields additional predictions on the size of the income premium enjoyed by capital city inhabitants and on the level of military spending by ruling elites, which are also supported by the evidence.

The title is “Isolated Capital Cities and Misgovernance: Theory and Evidence.”

As I wrote yesterday, Naypyidaw!  And yet there is more.  Across the fifty American states, isolated capital cities are more corrupt:

We show that isolated capital cities are robustly associated with greater levels of corruption across US states. In particular, this is the case when we use the variation induced by the exogenous location of a state’s centroid to instrument for the concentration of population around the capital city. We then show that different mechanisms for holding state politicians accountable are also affected by the spatial distribution of population: newspapers provide greater coverage of state politics when their audiences are more concentrated around the capital, and voter turnout in state elections is greater in places that are closer to the capital. Consistent with lower accountability, there is also evidence that there is more money in state-level political campaigns in those states with isolated capitals. We find that the role of media accountability helps explain the connection between isolated capitals and corruption. In addition, we provide some evidence that this pattern is also associated with lower levels of public good spending and outcomes.

“Trenton Makes the World Takes” — not exactly!

Christopher Balding on the real risk in China

by  Tyler Cowen in

In the past 5-8 years, and especially the past 3, China has built an enormous amount of stuff that nobody wants, needs, or uses.  Fueled by a lending boom that began in late 2008 and tripled total lending in 2009, Chinese government at all levels has been spending money like a drunken sailor on leave.  What should scare people however, is just how poorly this money has been spent.  To give you a few examples:

  • The Beijing government admits that 50% of apartments sit empty.  A similar number is found in most major cities in China, not to mention the entire cities that sit empty.
  • After major investment in wind power generation, most wind power capacity was incapable of generating power because…..it was not hooked up to the grid.
  • Housing price to income ratios that would make a California real estate bubble blush.  The average home price to income ratio peaked around 12 in California.  The China Daily (the Communist party mouth piece) speaks regularly of ratios in excess of 25.  One recent article noted that the average price per square foot in Beijing was nearly $300 while monthly per capita GDP was only $435.  That means using the long term global average for the income to housing price ratio, the average Beijinger should be able to buy a 7.6 square foot apartment.
  • Industrial capacity utilization that is officially at 60%.  (If you believe the official numbers I have a 7.6 square foot apartment I’d like to sell you)  This is driven by state owned banks and enterprises that over invested in 2009 due to the stimulus fueled lending boom.

His full post is here.

A look at U.S. income growth

by  Tyler Cowen in

From Jordan Weissmann:

Hat tip from @JustinWolfers.

By the way, Robert Gordon has a new paper pessimistic about future economic growth,  using this tagline at the end of the abstract:  “A provocative “exercise in subtraction” suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades.”  Mark P. Mills is more optimistic.

The culture that is Singapore

by  Tyler Cowen in

A Singapore property developer is targeting the super rich with parking problems by marketing luxury apartments that allow owners to keep their cars next to their living rooms, even if they are on the top floor of the 30-storey block.

The development, near the city-state’s main thoroughfare of Orchard Road, features what are described as “en suite sky garages” that automatically transport cars in a lift up to the desired level at the touch of a biometric pad in the basement entrance.

…Singapore, along with Hong Kong, is home to more Maseratis, Ferraris and Lamborghinis per capita than anywhere else in the world.

From the FT, by Jeremy Grant, here is more.

From the excellent Yichuan (Lulu) Wang

by  Tyler Cowen in

You all should be following him, or so it would seem to me.  Here are excerpts from his post What China Could Be Building:

The real risk is not that the housing won’t be used, but that the crash would have secondary effects. Local governments are dependent upon land sales for revenues, meaning a housing crash could have serious implications for government. In Guangdong province, some local governments are actually tearing down mountains to make new land in the ocean, all to sell the land. This, along with the recent reversal of capital flows and possible insolvency of private wealth management firms, represents a serious liquidity risk that can have disastrous consequences.

…So let’s answer Scott’s [Sumner] fundamental question:

So here’s my question for all of you China skeptics that insist they are building way too much housing, infrastructure, heavy industry, etc.  What precisely do you want them to build more of?  And what are the 100s of millions of Chinese living in tiny ramshackle homes to do?  Sit tight for a few more decades while resources pour into nice urban services for the pampered elite?I want them to start building leaf blowers, so we don’t have so many Chinese people in the low productivity position of sweeping streets. I want them to start building farm equipment, so we don’t have so many Chinese farmers tending the fields. I want them to build more laundry machines, to free the rural Chinese from scrubbing clothes on washboards. I want them to build electric stoves, so my Grandpa can put away the coal fired outside oven. I want them to build computers that can deliver cheaper education to the masses.

Instead of just focusing on “building,” I want them to invest in human capital, so productivity can be at a level that we don’t need “make work” jobs. I want them to build more schools and hire better teachers, so classes aren’t as large and you’re not damned if you can’t make it in a top elementary school. I want productivity to be high enough that high end stores don’t need more clerks than actual customers.

I want these things among many others that will only be more obvious in a freer market.

That Scott can get a haircut for $4 or an ice cream cone for 50 cents shows how low productivity and wages are in China. Yet they will not grow any faster with more housing or more state directed investments. Cheap subway rides are nice, but are they not just another sign that transportation infrastructure has been built too quickly? I’m not saying China is hitting a ceiling for growth, or that vast swaths of China are condemned to poverty. But what I am saying is that we need to worry about the systemic fragility that underpins the Chinese system, and be very, very concerned about the unknown magnitude of the downside risk.

His full blog is here, his short bio is here.