Month: September 2012

MR is Going to Korea: Gangnam Style!

Tyler and I will both be in South Korea in early October for the Asian launch of Marginal Revolution University. Tyler will be speaking at the World Knowledge Forum (Oct. 9-11). The WKF is known as the Asian Davos. In addition to Tyler, the speakers include Paul Krugman, Daron Acemoglu, Malcolm Gladwell, Cass Sunstein, Dani Rodrik, a number of other well known economists and social scientists and a host of political and business leaders.

Coincidentally, Google invited me to speak in South Korea on Oct. 9. I will be speaking on Innovation at the Google Big Tent event in Gangnam! I will also be on several panels at the WKF on the 10th and 11th.

Neither Tyler nor I have been to Korea before so we are looking forward to the trip. Recommendations welcome in the comments.

We are committed to making MRU a global player in online education.

The $35 tablet (perfect for MRU)

Do you want a tablet but don’t have enough money to buy one of those high-end tablets available in the market today?  Here’s some good news for you.  There’s a new $35 tablet, the catch is, you can only get it in India.

The new Aakash UbiSlate 7Ci comes equipped with WiFi so you can connect to the internet but if you’re living in India, you can avail of the $64 upgrade and have yourself a cellular Internet package of $2/month for 2 GB of data which translates to roughly 25 emails, 25 websites, 2 minutes of streaming video, and 15 minutes of voice chat a day.  It also features voice search, so it might help pacify your need for something similar to Apple’s Siri.

It features a 7.5-inch display, a front facing VGA camera, and a Cortex A8, 1Ghz Processor.  According to reports, it’s as fast as an iPhone, so it can’t be too bad.  It runs Android but the version hasn’t been specified yet.

The cheap tablet is part of the Indian government’s move to technologically mobilize the country.  The first batch of the affordable tablets will hit universities around India sometime this month and via a “special offer”, DataWind, the carrier and maker of the tablet, will offer broadband for a monthly cost of US$1.78.  And for those living in remote areas where electricity is sparse, they can get a solar charger for the Aakash UbiSlate 7Ci.

Here is more, and for the pointer I thank Mark Thorson.

We are no longer in the short run

Here is more from Eli Dourado, excerpt:

NGDP is almost 10 percent higher now than it was at the pre-crash peak. The number of people employed, even with population growth, is still below the pre-crash peak. Even assuming that insider nominal wages are totally inflexible, nominal output per worker has grown fast enough that insider real wages have probably adjusted. Furthermore, in five years, a non-trivial fraction of insiders retire or change jobs.

There is much more at the link.

Paul Romer on what happened in Honduras

Paul sends me the following, which he describes as “a personal statement to the news media”:

Qn: Prof. Romer, are you still working with the government of Honduras on the creation of a RED – a Region Especial de Dessarrollo?  Or on what some have called a model city? 

Ans: I and the other people who were named to the Transparency Commission wrote a public letter to President Lobo stating that we have no ongoing role in the project. Personally, I have also resigned from the CORED advisory committee.

Qn: In the beginning, you were an active supporter of the RED project. What changed? 

Ans: From recent newspaper reports, I learned that the Honduran agency responsible for public-private partnerships had signed an agreement about a RED with a private company. When I asked for information, I was told that I could not see this agreement.

This was a departure from the standards of transparency that the administration had led me to expect. It was also a departure from the role for the Transparency Commission outlined in the Constitutional Statute passed by the Honduran Congress.

Qn: How can it be that a member of the Transparency Commission could not see such an agreement? Under the process set out in the Constitutional Statute, doesn’t the Transparency Commission have to give an opinion about any proposed RED? 

Ans: In December 2011, President Lobo signed a decree naming me and four other internationally respected individuals to the Transparency Commission. At the time, these appointments were reported in the international news media, in particular by the The Economist. However, the government never completed the process of publishing this decree in the Gazette. The administration’s current position is that because the decree was never published, the Transparency Commission does not exist in the eyes of the law and the five named members have no legal basis for reviewing any agreements.

Qn: Can the government create a RED if the Transparency Commission does not  yet exist? 

Ans: If the Transparency Commission does not yet exist, the administration can propose a RED directly to the Congress. The RED will then come into existence if the Congress passes an act describing its geographical boundaries. Passing an act that specifies boundaries may seem like a minor detail, but under the Constitutional Statute, it has important legal consequences.

Qn: Does the administration have to disclose the terms of any agreement that it signs with a company that will invest in or manage a RED? Does the company have to disclose the identities of its financial backers? Does the company have to disclose anything about its experience or qualifications? 

Ans: The law states that the Transparency Commission must be given all the information needed to evaluate any proposed RED. If there is no Transparency Commission, the Congress is the only remaining protection. To make sure that it is comfortable with the identities of the investors and the governance structure that the investors have negotiated in their agreements, the Congress could insist on full disclosure before it votes a RED into existence. The Congress might also want to insist that it have a separate right to approve any agreement related to a proposed or existing RED that could place a financial burden on the Honduran government. This kind of burden could arise, for example, through an agreement that lets a private party bring a claim for damages against the government.

Qn: Do you know how the misunderstanding about the legal status of the Transparency Commission came about?  

Ans: Various explanations have been offered, but I cannot be certain why the decree naming the members of the commission was never published in the Gazette. Nor can I be certain why the administration did not disclose its decision not to publish the decree.

Whatever the reasons for these decisions, the result was an important failure of transparency. The public perception, that the Transparency Commission was in operation, differed from the reality. This gave the wrong impression about the checks and balances that would be operating as the first RED came into existence.

From the very beginning, I made a commitment to the citizens of Honduras, to the members of the Honduran Congress, and to the many people around the world who wish Honduras well. I committed that I would work for their benefit and do so transparently. This means that at a time such as this I have to be willing to state to the public what I know to be true.

Paul also sends along these links (in Spanish):

Questions about TIPS

From Angus:

The 10 treasury bond is yielding around 1.7% (none of what follows relies on the exact values of the numbers).

The 10 year TIPS yield is around  -.7%.  So a common calculation of inflation expectations, so called break-even inflation is at 2.4%.

From this information, I arrive at two important (at least to me) questions:

(1) Is this a reasonable measure of inflation expectations and (2) If so, what does it mean about the economy?

I question (1) because of concerns about the lack of liquidity in the TIPS market, the old issues of market segmentation, and just generally because equilibrium conditions in financial markets that aren’t enforced by pure arbitrage don’t actually seem to hold in the data.

I did a bit of research and found a couple Fed branch bank papers on the topic (see here and here).  Both papers conclude (if I am reading them correctly) that the break-even inflation calculation of inflation expectations probably understates expected inflation!

So that leads to question 2. If Inflation expectations are above 2.4%, but the 10 year treasury is yielding 1.7%, why are people holding 10 year treasuries? Because the equilibrium real interest rate on safe securities is negative, like around -1.0%? 4 years after the crisis, risk aversion is so high that people are willing to accept a negative return for in exchange for safety? So either the supply of safe assets is very small, or the demand for safe assets is overwhelmingly high?

If inflation expectations at the 10 year window are rising, but returns on 10 year treasuries are simultaneously falling, then the equilibrium real rate of interest on safe assets is getting lower and lower (in our case more and more negative).

Does this mean that 4 years after the crisis, people’s willingness to undertake risky investments is actually falling? If so, isn’t that a very bad sign for the direction of future economic activity?  The Baa seasoned bond yield is 4.9%. If inflation expectations are 3%, then the real return to capital is 1.9%?

Or does it mean somehow that the supply of safe assets is shrinking faster than the demand for safe assets is falling? Can we just blame Europe?

Or are we just making a big mistake in calculating inflation expectations?

The Great Rice Stagnation

…the rice yield per hectare in Japan, after climbing for more than a century, has not increased at all over the last 17 years.  It is not that Japanese farmers do not want to continue raising their rice yields.  They do.  With a domestic support price far above the world market price, raising yields in Japan is highly profitable .  The problem is that Japan’s farmers are already using all the technologies available to raise land productivity.

Like Japan, South Korea’s rice yield also has plateaued.

…Rice yields in Chin are now very close to those in Japan.  Unless Chinese farmers can somehow surpass their Japanese counterparts, which seems unlikely, China’s rice yields appear about to plateau.  If China hits the glass ceiling for its rice yields, then one third of the world’s rice would be produced in three countries (Japan, South Korea, and China) that can no longer raise land productivity or expand the area in rice.

That is from the new, excellent and to the point Full Planet, Empty Plates: The New Geopolitics of Food Scarcity, by Lester R. Brown.

Cambodian Genocide Denialism in Counterpunch

I was shocked by the latest issue of Counterpunch which includes a truly offensive article full of praise for one of the greatest mass murderers in human history, Pol Pot.

“The Pol Pot the Cambodians remember was not a tyrant, but a great patriot and nationalist, a lover of native culture and native way of life. He was brought up in  royal palace circles; his aunt was a concubine of the previous king. He studied in Paris, but instead of making money and a career, he returned home, and spent a few years dwelling with forest tribes to learn from the peasants. He felt compassion for the ordinary village people who were ripped off on a daily basis by the city folk, the comprador parasites. He built an army to defend the countryside from these power-wielding robbers. Pol Pot, a monkish man of simple needs, did not seek wealth, fame or power for himself. He had one great ambition: to terminate the failing colonial capitalism in Cambodia, return to village tradition, and from there, to build a new country from scratch.

…St Francis and Leo Tolstoy would have understood him.

The Cambodians I spoke to pooh-poohed the dreadful stories of Communist Holocaust as a western invention.”

As if praise for Pol Pot were not enough, the author doubles down with support for Stalin and Mao.

“…To me, this recalled other CIA-sponsored stories of Red atrocities, be it Stalin’s Terror or the Ukrainian Holodomor. The people now in charge of the US, Europe and Russia want to present every alternative to their rule as inept or bloody or both. They especially hate incorruptible leaders, be it Robespierre or Lenin, Stalin or Mao – and Pol Pot.”

I consider this article to be on par with Holocaust denialism and praise for Hitler. Counterpunch is a leftist periodical but it is not without mainstream support and respect so I think this is worth calling out.

For the record, the most credible sources all estimate excess deaths under Pol Pot’s brutal regime of between 1.4 and 2.2 million people, approximately 20-25% of the entire population. The estimates come from three types of sources, 1) Interviews with survivors about relatives and neighbors killed, 2) Demographic estimates from before and after the Khmer Rouge which even today show massive discrepancies, especially for men of the relevant ages and 3) Surveys of mass graves. A good review is here. See also Yale’s Cambodian Genocide Project which does not overlook US involvement. None of this is especially controversial so Wikipedia is a good overview:

In power, the Khmer Rouge carried out a radical program that included isolating the country from foreign influence, closing schools, hospitals and factories, abolishing banking, finance and currency, outlawing all religions, confiscating all private property and relocating people from urban areas to collective farms where forced labour was widespread. The purpose of this policy was to turn Cambodians into “Old People” through agricultural labour. These actions resulted in massive deaths through executions, work exhaustion, illness, and starvation.

…Modern research has located 20,000 mass graves from the Khmer Rouge era all over Cambodia. Various studies have estimated the death toll at between 740,000 and 3,000,000, most commonly between 1.4 million and 2.2 million, with perhaps half of those deaths being due to executions, and the rest from starvation and disease.

The U.S. State Department-funded Yale Cambodian Genocide Project estimates approximately 1.7 million. R. J. Rummel, an analyst of historical political killings, gives a figure of 2 million.

A UN investigation reported 2–3 million dead, while UNICEF estimated 3 million had been killed. Demographic analysis by Patrick Heuveline suggests that between 1.17 and 3.42 million Cambodians were killed, while Marek Sliwinski estimates that 1.8 million is a conservative figure. Researcher Craig Etcheson of the Documentation Center of Cambodia suggests that the death toll was between 2 and 2.5 million, with a “most likely” figure of 2.2 million. After 5 years of researching grave sites, he concluded that “these mass graves contain the remains of 1,386,734 victims of execution”.

The bias against stale labor

Rational or not?  Brian Leiter reports:

Philosopher Daniel Weiskopf (George State) calls my attention to a quite startling ad for a job in English at Colorado State University, which requires that applicants have earned the PhD since 2010!  As the linked post notes, given the state of the humanities job market, everyone knows there are lots of very good candidates with PhDs from 2009, 2008 and, horrors, even 2007 who still haven’t found suitable appointments.  This ad promises to consign them to the discard pile without even looking at them.

There is another example here.  By the way, here is a Leiter post updating us on Grayling’s New College of the Humanities.

How random are RCTs?

From Hunt Allcott and Sendhil Mullainathan, “External Validity and Partner Selection Bias”:

Program evaluation often involves generalizing internally-valid site-specific estimates to a different target population. While many analyses have tested the assumptions required for internal validity (e.g. LaLonde 1986), there has been little empirical assessment of external validity in any context, because identical treatments are rarely evaluated in multiple sites. This paper examines a remarkable series of 14 energy conservation field experiments run by a company called Opower, involving 550,000 households in different cities across the U.S. We first show that the site-specific treatment effect heterogeneity is both statistically and economically significant. We then show that Opower partners are selected on partner-level characteristics that are correlated with the treatment effect. This “partner selection bias” implies that replications with additional partners have not given an unbiased estimate of the distribution of treatment effects in non-partner sites. We augment these results in a different context by showing that partner microfinance institutions (MFIs) that carry out randomized experiments are selected on observable characteristics from the global pool of MFIs. Finally, we propose two simple suggestive tests of external validity that can be used in the absence of data from many sites: comparison of observable sample and target site characteristics and an F-test of heterogeneous treatment effects across “sub-sites” within a site.

The gated paper is here, ungated here.  For the pointer I thank @JustinSandefur.

*Innovation Economics*

That is the new book by Rob Atkinson and Stephen Ezell.  It is far more mercantilist than I feel comfortable with, yet it is full of information and argumentation, and it is a book one can profitably engage with.  Here is one excerpt:

The largely consensus view among U.S. economic elites is that the massive U.S. job loss in manufacturing is simply a reflection of manufacturing doing well: using technology to automate work and to become more efficient.  It’s the agriculture story they tell us…

There are two big problems with this view.  The first is that it is not supported by the official government data.  In fact, U.S. manufacturing lost jobs much faster in the 2000s than in the 1990s, even though productivity growth was similar during the two decades.  In the 1990s, U.S. manufacturing employment fell 1 percent, while productivity increased 56 percent.  Yet, in the 2000s, manufacturing employment fell 32 percent while productivity increased only slightly faster, 61 percent.  So, clearly, higher productivity was not the main cause of the manufacturing employment collapse.

As Michael Mandel has pointed out repeatedly, there are also problems with the data, and here are our authors on that point:

…a closer look reveals that every durable goods industry grew more slowly in output than GDP except one: computer/electronics which grew a whopping 720 percent faster than GDP…To put this in perspective, this one sector accounted for 113 percent of U.S. manufacturing output growth in the 2000s, even though, in 1997, it accounted for just 12 percent of manufacturing output.

Note that a lot of this measured growth is quality improvement in computers, rather than growth of the sector in the traditional sense of having a rapidly expanding industry.  Employment in that sector fell.  The performance of the other manufacturing sectors is not so impressive:

…during 2001-2010, manufacturing minus computers actually lost 6 percent of its value-added.  Output of the electrical equipment and wood products industries declined by 7 percent, plastics by 8 percent, fabricated metals by 10 percent, printing by 12 percent, furniture by 19 percent, nonmetallic minerals and primary metals and paper by 31 percent, apparel by 34 percent, and textiles and motor vehicles by 39 percent.  In other words, thirteen manufacturing sector that made up 58 percent of U.S. manufacturing employment all produced less in 2010 than in 2001, all at a time when the overall economy grew 15.8 percent.

I suppose you could say that education and health care have in fact seen striking advances in productivity during this period.  Or you could recall my portrait in The Great Stagnation of an economy which has only a very small number of dynamic sectors, with computers of course in the lead.  Overall it is not a pretty picture.