Month: August 2012

*The Park Chung Hee Era*

That is a book from last year, edited by Byung-Kook Kim and Ezra F. Vogel, which somehow escaped the notice of much of the broader world.  Maybe because it is a collection, as we all know that most edited collections are mediocre.  This one is superb, as it offers a very detailed and also fairly comprehensive look at the seminal years for South Korean economic growth.  Two-thirds of the essays are excellent and the others are at least pretty good.  My favorite was the Paul Hutchcroft comparison between the economic development of South Korea and the Philippines.  Not everyone will want 650 pp. on economic (and other) policy under South Korean autocracy, but if you do this is the book for you.  I didn’t even mind paying $47.50 for it.

The Great Unraveling continues

The Spanish and Italian commercial property markets have all but collapsed with the number of transactions in both countries falling more than 90 per cent in the three months to July as investors worry about the future of the eurozone.

Only three property transactions were registered in Spain during the second quarter, down from 58 deals in the previous quarter. In Italy the slide was even more pronounced, with just two buildings being traded during the period, down from 56, according to data from Real Capital Analytics.

Here is more, “Property markets in Spain and Italy close to collapse,” from the FT.

What is the most underrated innovation of the last one hundred years?

That was another question I was asked.

I find it difficult to compare the “ratings” of early 20th century innovations to the ratings of innovations today, since it is often different audiences doing the admiring, or lack thereof.

For the most underrated innovations of the last one hundred years I might pick the insights of Alan Turing, various developments in electrical engineering including better transformers, or the nitrogen-fertilizer connection, noting that in some quarters there is already plenty of recognition for each of these, Turing in particular.  But still not enough!

As for contemporary innovations, I see an underrated one as Amazon’s warehousing and shipping practices.  It will mean the death of much of retail and transform our suburban physical spaces into something quite…????.   Into something, in any case.  I am a social networking optimist, and think it has largely beneficial effects on social mores, but I also see it as having peaked at a near-saturation point.

Here is a good video on “Amazon yesterday shipping.”

The wisdom of Miles Kimball

Don’t have a health care entitlement with no defined amount of money attached. Choose a $ figure and see what we can do with it.

As long as we precommit to lower health care spending by the government, it’s great to hope that comes from pushing prices down.

Those are both from Twitter, and here is a concordance of more of the tweets.  I have myself toyed with this idea from Miles:

How about a new model: free clinics for all we can afford. People on their own for the rest. No employer insurance deduction.

Two prisms for looking at China’s problems

Here is my latest NYT column, which contrasts Keynesian and Austrian (or neo-Austrian, if you prefer) ways of thinking about the Chinese economy.  Excerpt:

Keynesians would argue that Beijing has the tools to stoke aggregate demand. It could, for example, adjust interest rates and bank reserve requirements, instruct state-owned banks to maintain lending, or deploy some of its $3 trillion in foreign exchange reserves. The government also appears to have many shovel-ready construction and infrastructure projects that could help the economy glide to a soft landing and then bounce back.

The Austrian perspective introduces some scarier considerations. China has been investing 40 percent to 50 percent of its national income. But it is hard to invest so much money wisely, particularly in an environment of economic favoritism. And this rate of investment is artificially high to begin with.

Beijing is often accused of manipulating the value of its currency, the renminbi, to subsidize its manufacturing. The government also funnels domestic savings into the national banking system and grants subsidies to politically favored businesses, and it seems obsessed with building infrastructure. All of this tips the economy in very particular directions.

The Austrian approach raises the possibility that there is no way for China to make good on enough of its oversubsidized investments. At first, they create lots of jobs and revenue, but as the business cycle proceeds, new marginal investments become less valuable and more prone to allocation by corruption. The giddy booms of earlier times wear off, and suddenly not every decision seems wise. The combination can lead to an economic crackup — not because aggregate demand is too low, but because the economy has been producing the wrong mix of goods and services.

To keep its investments in business, the Chinese government will almost certainly continue to use political means, like propping up ailing companies with credit from state-owned banks. But whether or not those companies survive, the investments themselves have been wasteful, and that will eventually damage the economy. In the Austrian perspective, the government has less ability to set things right than in Keynesian theories.

Read the whole thing.

Some raw numbers on health care costs

From Kenneth Kaufman:

During the past months, a number of important articles have appeared in the healthcare literature on the subject of the recent slowing of health-spending growth in the U.S. In an article in January’s Health Affairs, economists at the Centers for Medicare and Medicaid Services suggest that the recession, even though officially ending in mid-2009, was the major factor in “extraordinarily slow” spending growth of 4.7 percent in 2008 and 3.9 percent in 2010, down from 7.5 percent in 2007 and double-digit growth in the 1980s and 1990s. Also citing recessionary causes, a report from the McKinsey Center for U.S. Health System Reform specifies declines in the rate of overall spending growth for eight consecutive years, from 9.2 percent in 2002 to 4.0 percent in 2009.

As I’ve already mentioned, “too soon to tell” is the correct response.  Still, we should be raising our probability that the health care cost curve is (somewhat) being bent.

There is much more at the link.  You can read Suderman and Lowrey here.

My dual review of Michael Casey and Daniel Gross

It is from The New York Times Book Review, and it covers Michael J. Casey’s The Unfair Trade: How Our Broken Global Financial System destroys the Middle Class, and Daniel Gross’s Better, Stronger, Faster: The Myth of American Decline…and the Rise of a New Economy.  My bottom line:

Each of these books illuminates one particular economic story very well, but fails to see the larger and more complex picture.

One excerpt on the Casey book:

But does China deserve so much attention (5 chapters out of the book’s 10)? Casey writes that China “provided the cheap goods needed to sustain the American way of life, as well as the finance to pay for it.” Yet the numbers tell a less dramatic story. Currently, imports from China are measured at about 2.7 percent of consumer spending in America. Furthermore, for each dollar of imports from China, a lot of that money was spent in the United States preparing the import; imagine an iPad designed and marketed from Cupertino, Calif., but counted as an import from China. That leaves Chinese imports, measured in terms of true net impact, at about 1.2 percent of American consumer spending.

One excerpt on the Gross book:

The most probable American economic future is a lot of export success, fantastic wealth for the owners of thriving businesses and persistent productivity problems, and thus high prices, for some major items in consumer budgets. That means more stagnation of real wages at the middle of the income distribution.

Both books are already on the market.

Olympic Game Theory

How can you win a race by going slow? Check out the following video from the World Cup 2012 Individual Sprint Track Cycling (similar scenes can be found at the Olympics). The two cyclists, some of the fastest riders in the world, start out by going as slow as possible, almost like something out of Monty Python. In some races the riders will even come to a standstill.

Loyal reader Andy Garin has the analysis:

…in an all-out sprint, drafting creates a huge advantage, as the leading cyclist wears out very quickly. So both drop their speed so low that neither can take advantage of the other–well, at least until the last lap, at which point the advantage to being in front is about the same as the advantage of drafting from behind for 2/3 of a lap or so.

But note that this sort of problem arises because there are only two cyclists in the race. In Tour De France style road racing (or even the Keirin even on track, which is apparently also an Olympic event), one cyclists’ speed decisions only very marginally change the incentives of other riders. But in the Individual Sprint, you see something more like Bertrand-style dupolistic competition–that is, in the latter, one’s strategy is entirely based on the behavior of the other player. Specifically, it’s always better  to “undersell” the other player (i.e. to be in the rear) in the first two laps. And thus, you get the odd equilibrium where both set their speed to a negligible exertion level.

Unlike in the badminton tournament where some teams tried to lose, the cyclists are trying to win so going slow isn’t considered unsporting but it does make for a peculiar race.

Cyclists in the group event, however, will sometimes deliberately crash, as just happened in the Olympics.

“I just crashed, I did it on purpose to get a restart, just to have the fastest ride. I did it. So it was all planned, really,” Hindes reportedly said immediately after the race. He modified his comments at the official news conference to say he lost control of his bike.

…”He (Hindes) should not have told the truth,” Daniel Morelon, a Frenchman who coaches the China team, told the AP. “It’s part of the game, but you should not tell others.”

Hindes and his team went on to win, so engineering a crash can earn you gold. Surprisingly, cycling turns out to be kinda like banking.

Are health care costs really slowing down?

Sarah Kliff writes:

The New England Journal of Medicine published a paper this week titled “When the Cost Curve Bent,” where researchers from the Center for Sustainable Health Costs suggest that the slowdown happened way before the recession. Their analysis shows — and you can see it in this chart — that excess health-care spending growth (any spending above and beyond potential gross domestic product) began to moderate in the early 2000s:

“Too soon to say” is a fair enough response, but this has become increasingly my view over the last year.

Addendum: Angus comments.

1964 predictions about the year 2000

From The New York Times Magazine, excellent visuals and excerpts.  As for how the world would look, from today’s vantage point:

It’s surprisingly still more like 1900 out there.

Housemaids, waitresses, and nurses will cease to exist as professions.  Fortunately:

By then, the last traces of racial and religious discrimination will have disappeared.

Does the dismal science deserve federal funding?

Here is today’s WSJ Op-Ed by Gary Becker and James Heckman.  In general I am sympathetic to government funding for science, but I’d like to tack on a few points to these arguments in particular.

1. There is not a peep about supply elasticity.  A lot of economics research comes pretty cheaply and presumably without direct government subsidy.  Isn’t the implied conclusion to invest a lot in data gathering and RCTs/field experiments, but not so much in large swathes of economics?  Should we not start by listing all those branches of economics which should not be eligible for subsidy?

2. Is there possibly a higher external benefit to directing the attention of economists to teaching or community service rather than research?  Somehow this argument ends up underplayed when economists discuss subsidies.  Or how about subsidies for economics bloggers?  Presumably there is lots of good economics research which remains underpublicized and underutilized.  Isn’t that often the relevant choke point, not lack of new research ideas and findings?

3. Economics research is already highly subsidized through our tax code and legal treatment of non-profits.  An argument for subsidy is not the same as an argument for further subsidy.

4. I find it easy to believe the subsidies for economists would bring higher returns than the worst uses of federal funds.  But surely larger subsidies for economists are not the highest return projects before us.  Isn’t it worth listing which projects would be even better than subsidies for economists (or at least acknowledging that they exist)?  How about reporting “Subsidies for economists are better than farm subsidies, but not as good as medical R&D subsidies or 347 other uses of the funds”?  Presumably the goal is to bring about the best outcome possible, not just to advocate further subsidies for economists, right?  Right?  Right?  After all, that is what the economic method is all about.