Month: January 2013

Selling Federal Assets

by  Alex Tabarrok in

According to The Institute for Energy Research the Federal government owns oil and gas worth on the order of $128 trillion. I suspect that these numbers are optimistic. Nevertheless, some judicious sales of land and assets (and to its credit the Obama administration has made some small steps in this direction) would be wise.

Federal assets below the ground are primarily mineral and energy resources, such as oil, natural gas, and coal.  For example, the United States owns millions of acres and billions of barrels of oil that can be developed on federal lands and waters. Currently, the government leases only 2 percent of federal offshore areas and less than 6 percent of federal onshore lands for oil and natural gas production. Areas that the federal government could open to oil and gas development include:

These technically recoverable resources total 1,194 billion barrels of oil and 2,150 trillion cubic feet of natural gas that is owned by the federal taxpayer. At $100.00 per barrel of oil and $4.00 per thousand cubic feet of natural gas, the oil resources are worth $119.4 trillion and the natural gas resources are worth $8.6 trillion for a grand total of $128 trillion, or about 8 times the U.S. national debt.[iii]

Hat tip: Robert Murphy.

Why should we not recreate Neanderthals?

by  Tyler Cowen in

A few of you were puzzled over this question two days ago, or at least pretended to be.  So why not?  For a start, the cloning process probably would require a lot of trial and error, with plenty of victims of experimentation being created along the way.

Then ask yourself some basic questions about Neanderthals: could they be taught in our schools?  Who would rear the first generation?  Would human parents find this at all rewarding?  Do they have enough impulse control to move freely in human society?  How happy would they be with such a limited number of peers?  What public health issues would be involved and how would we learn about those issues in advance?  What would happen the first time a Neanderthal kills a human child?  Carries and transmits a contagious disease?  By the way, how much resistance would the Neanderthals have to modern diseases?

What kinds of “human rights” would we issue to them?  Would we end up treating them better than lab chimpanzees?  Would they be covered by ACA and have emergency room rights?

We don’t know the answers here, but I would expect to run up against a number of significant fails on these issues and others.

We do, however, know two things.  First, the one environment we know they could survive in (for a while) was a Europe teeming with wildlife.  That no longer exists.

Second, we’ve already run the “human/Neanderthal coexistence experiment” once, and it seems to have ended in the violent destruction of one of those groups.  It would be naive to expect anything much better the second time around.

Most likely the Neanderthals would end up in some version of concentration camps, with a lot of suffering and pain along the way, and I don’t see that as an outcome worth bringing about.

Addendum: If you’d like to read another point of view, there is George Church and Ed Regis, Regenesis: How Synthetic Biology Will Reinvent Nature and Ourselves.

Will Latin American stay underpopulated for another century?

by  Tyler Cowen in

Think of how many people live in Asia, and how few, relatively speaking, live in Latin America.

Latin America has (mostly) beautiful weather, lots of natural resources, and attractive cultural amenities.  Mock the living standard all you wish but even Bolivia has higher per capita income than the much better publicized “Asian tiger” Vietnam.  The region simply isn’t that poor by global standards.

Crime is a problem but likely will fall, due to aging, better policing, and perhaps lead removal.

What does a Coasian bargain between parts of Asia and Latin America look like?  Will many Chinese and Indians end up in Ecuador and Honduras?

I would bet no, but still I wonder.  Often we overvalue the permanence of the status quo and the region has seen some major inward migrations in times past.

Assorted links

by  Tyler Cowen

1. Russ Roberts speaks with Kevin Kelly.

2. Fuchsia Dunlop has a blog.

3. There is no great stagnation (moisturizing jeans).

4. Scott Sumner explains his views on price inflation.  And here is Arnold Kling on the Greek Phillips Curve.

5. More on whether there is a new Icelandic housing bubble.

6. Goodhart, Baker, and Ashworth on nominal gdp targeting.

7. Error, retraction, second thoughts, translation mistake or what, George Church issues a further statement.

What is actually going on in Iceland?

by  Tyler Cowen in

This is a complex, fascinating, and probably not totally reliable account, by Baldur Bjarnason, but I pass it along for its detail and numerous points of interest.  I do recommend reading the whole thing, and here is one excerpt:

Income has dropped for Icelandic households. Their debt is index-linked. The growth is largely due to a resurgence of the property bubble and return to bank growth due to index-linked loans surging upwards, i.e. households don’t benefit from it much, if at all. They can’t tap into the booming property market because they are already over-leveraged, Icelandic bankruptcy laws prevent people from walking away from their mortgages (you can’t even die away from them, if you die, your children have to pay) and the property market is largely dominated by captured money, foreign capital that can’t escape due to the currency restrictions.

That’s why I mentioned the inflation figure. When your mortgage is index-linked and your pay is static or decreasing, high inflation completely destroys whatever economic benefit your household might get from the economic growth. The prevalence of index-linked loans means that inflation has a disproportionate negative effect on households, especially compared to other countries where you can get non-index-linked loans.

The higher the inflation, no matter how much higher growth is, chances are the end result will be devastation for Icelandic households. So even if Iceland manages a miraculous 5% growth, if the underlying inflation is 10% then the result would be national economic devastation due to the fact that the majority of Icelandic loans and mortgages are bound by Iceland’s warped and eccentric variation of consumer price index-linking.

And for the same reason, if Iceland had managed 2.6% growth over 2% inflation (instead of 4%), the economic effects on household debt burden would have been different and we wouldn’t be facing as imminent a crisis as we’re facing as we head into 2013.

There is plenty of it which I cannot judge, but it is worth a ponder.

For the pointer I thank Chris F. Masse.

What is driving growth in government spending?

by  Tyler Cowen in

Here are some very useful pictures and infographics, excerpt:

To clarify: all of the major categories of government spending have been increasing relative to inflation. But essentially all of the increase in spending relative to economic growth, and the potential tax base, has come from entitlement programs, and about half of that has come from health care entitlements specifically.

That is not NRO but rather Nate Silver.  Here is the concluding tag:

We may have gone from conceiving of government as an entity that builds roads, dams and airports, provides shared services like schooling, policing and national parks, and wages wars, into the world’s largest insurance broker.

Most of us don’t much care for our insurance broker.

For the pointer I thank Rob Raffety.

Addendum: Henry Aaron has a very sane piece on progressives and the safety net.  I see the current American Left as rapidly losing what it once knew about the need for entitlement reform.  This is a shame, it does not augur well for our fiscal future, and it remains an under-reported story.  I see it happening right under my nose, day by day, article by article, blog post by blog post.

Surely Harvard faculty would never say anything like this

by  Tyler Cowen in

SPIEGEL: How do we have to imagine this: You raise Neanderthals in a lab, ask them to solve problems and thereby study how they think?

Church: No, you would certainly have to create a cohort, so they would have some sense of identity. They could maybe even create a new neo-Neanderthal culture and become a political force.

SPIEGEL: Wouldn’t it be ethically problematic to create a Neanderthal just for the sake of scientific curiosity?

Church: Well, curiosity may be part of it, but it’s not the most important driving force. The main goal is to increase diversity. The one thing that is bad for society is low diversity. This is true for culture or evolution, for species and also for whole societies. If you become a monoculture, you are at great risk of perishing. Therefore the recreation of Neanderthals would be mainly a question of societal risk avoidance.

I find this a pretty outrageous and indefensible set of sentiments, and I am one who would like to see the United States target a higher population of 500 million through increased immigration.

It must be a misquotation.  And please note that “Church” is not in fact “The Church” responding, but rather Professor George Church of Harvard University.

Here is more, with numerous hat tips to those in my Twitter feed.

Assorted links

by  Tyler Cowen

1. Where in the store should you place the condoms?

2. Paul Krugman on inequality and recovery and Stiglitz.

3. Are all prices in Norway this high?

4. Tim Duy on inflation in Greece, but sorry falling inflation of a few scant percentage points doesn’t do the trick, nor does the 1% deflation which finally arrives at the end of the energy-subtracted series.  For a simple point of comparison, the rate of U.S. price deflation in 1932 was greater than ten percent with overall deflation running at about twenty-five percent over a period of a few years.  More recently, Japan had nine straight years of core CPI deflation and Greece cannot even manage anything close to that.  Just what is the Greek Phillips Curve supposed to look like?

5. Where Chinese growth is coming from.

6. Shruti R. on James Buchanan.

7. Fake economist fools Portugal (for a while).

What I’ve been reading

by  Tyler Cowen in

1. Amy Willentz, Farewell, Fred Voodoo: A Letter from Haiti, and Jonathan M. Katz, The Big Truck that Went By: How the World Came to Save Haiti and Left Behind a Disaster.  Two excellent recent memoirs on what has been happening in Haiti post-earthquake.  My main complaint is that both books are marred by the same mistake in economics, namely starting with “small amounts of foreign investment haven’t done Haiti much good,” and moving to “Haiti should not be focusing on foreign investment.”  With so many lives at stake, that is a tragic and indeed needless error in reasoning.

2. Janan Ganesh, George Osborne: Austerity Chancellor.  A good profile to read for understanding how the modern UK arrived at the point it is at.

3. Zareer Masani, Macaulay: Pioneer of India’s Modernization.  A good profile to read for understanding how the earlier UK, in its colonial empire, arrived at the point it is at.

4. Franklin E. Zimring, The City that Became Safe: New York’s Lessons for Urban Crime and its Control.  A useful and engaging survey of some of what we know about urban crime, and it knows not to reach too far.  Police crackdowns on open-air drug markets is one factor which receives some credit.

5. Ian W. McLean, Why Australia Prospered: The Shifting Sources of Economic Growth.  The writing is not exciting, but nonetheless an interesting look at the longer-run history of Australian prosperity.  I had not known that the nation was the wealthiest in per capita terms for part of the late 19th century and then underwent considerable stagnation in the first half of the 20th century.

Chief Rabbi Sacks on Comparative Advantage

by  Alex Tabarrok in

In this short video, Jonathan Sacks, the Chief Rabbi for the British Orthodox synagogues, explains how the “beautiful idea” of comparative advantage promotes peace, cooperation and tolerance among all people. Few religious leaders understand economics and fewer still are able to draw out the spiritual and humane dimensions. Yishar Koach!

*Zero Dark Thirty*

by  Tyler Cowen in

I didn’t think much of it.  Take away the topic and the controversy over the torture and it is quite an ordinary movie, albeit with less sparkle and character development than even a lot of standard Hollywood fare.  It fails to be thoughtful on its main issues, no matter what your point of view.  The technical execution of the compound-storming scene is very good, but that virtue shows the movie itself to reflect some of the weaknesses of its parent nation — the United States — namely in having good military technique but a weak grasp of the broader issues and little interest in going deep.

I don’t regret having seen it, but I would regret it even less had they not made it in the first place.

Why is there still inflation in Greece? (model this)

by  Tyler Cowen in

The rates of price inflation in Greece have been running in the range of 0.8% to 2%.

For another point of view, try this article:

The new bank that emerged from the breakup of Greece’s troubled Hellenic Postbank will initially hire all of the old lender’s staff but offer voluntary redundancies as it tries to cut payroll costs by 30 percent, its management said on Saturday.

The latter story of course is not just specific to a single firm but is common from Greece over the last few years.

It’s funny how many people pretend to understand what is going on here.  If Greece were seeing a stronger bout of price deflation, the situation would be much clearer.  How can you try to explain these disparate facts?

1. The true rate of inflation is much lower — in fact there is deflation — because of reporting biases in the Greek CPI.  That’s putting a lot of faith in numbers we do not see, plus it does not explain why the recorded numbers still show some upward pressure.

2. For structural adjustment reasons Greece needs a big cut in real wages, but AD is holding up OK.  It’s hard for me to believe the last part of that one.

3. You can have a major and sustained whack to AD, but still have rising prices.  How so?  Would Lieutenant Colombo be happy with this?

4. Scott Sumner has a view which I do not understand, and thus do not wish to try to state, but it has something to do with not really believing in the concept of price inflation.

5. Prices are sticky, AD is falling, and almost all of the adjustment is in quantities.  Yet this still doesn’t explain why prices are inching up, and furthermore it is grossly at variance with the actual empirical literature on price stickiness (much neglected in the blogosphere I should add), which is not nearly as strong as wage stickiness.

6. There are multiple equilibria, and Greece is moving from a perception of having “nearly West European levels of trust and cooperation” to having “Balkan levels of trust and cooperation,” and that is causing real wages and investment to plummet.  I’ve toyed with this hypothesis in the past, but I would be the first to admit it is highly speculative.  I do still think it is part of the explanation.

There is a similar puzzle for some of the other eurozone economies, and even, to a much smaller degree, for the United States over the last few years.