Month: March 2013
Their somewhat mysterious announcement, which refers to financial irregularities, can be read here.
The author is Neil Irwin and the subtitle is Three Central Bankers and a World on Fire. This is very likely a very good book. If my quick perusal is accurate, I like how Irwin refers to Trichet as “the president of Europe.” There is also a very interesting chapter on the Swedish central bank of the 17th century.
In Toronto, 63 percent of the population will be foreign born by 2031…In Vancouver, the foreign-born population will be 59 percent.
That is from the quite interesting The Big Shift: The Seismic Change in Canadian Politics, Business, and Culture and What it Means for Our Future, by Darrell Bricker and John Ibbitson. If you are into the “how should the Republican Party reinvent itself?” question, this book is a must-read. That’s not so much my thing, but it’s also a fascinating introduction to the new ethnic politics in Canada and why so many Canadian immigrants have seen fit to vote for the conservatives.
3. Democracy in America on framing (I view the Dutch example as supporting my point, actually, noting that the platforms of far left socialist parties won’t match up to interests very well in any case).
6. The home advantage plays virtually no role in objectively-evaluated individual sports, as opposed to team sports.
Keith Hennessey has an excellent post on government infrastructure investment. Here are his key points:
- Capital investment by government often pursues multiple policy goals, some of which conflict with maximizing productivity growth. If you’re investing for long-run growth you’ll invest differently than if you also have goals to maximize short-term job creation and to change the future balance of energy sources to reduce greenhouse gas emissions (for instance). The pursuit of multiple policy goals lowers the expected economic growth benefit of public capital spending.
- Geographic politics distorts and often dominates government investment in physical infrastructure. Highway funds and airport funds especially are allocated in part based on which Members of Congress have maximum procedural leverage over the spending bill. Even if you could somehow get Congress to stop earmarking infrastructure spending (good luck), and even if you could rely on the Executive Branch not to allow their own political goals to influence how they allocate funds, local geographic politics would come into play at the state level, since much federal infrastructure spending flows through State governments. This is where reality most falls short of a valid theoretical starting point for increasing productivity and long-term growth.
- Non-geographic politics can distort government capital spending. This is principally an Executive Branch concern, as we saw with the Obama Administration’s decision to throw good money after bad to postpone Solyndra’s failure. And rent-seekers come out of the woodwork, looking to leverage their connections to government officials to win infrastructure investment contracts.
- Once “investment” is favored, everything gets relabeled as investment. The Obama Administration has been particularly guilty of this; almost every spending increase they propose is an “investment” of some sort. We should allow them some rhetorical leeway, and we should recognize that government has other reasons to spend money than just to maximize future economic growth. At the same time, it’s misleading when they claim that increased government spending that serves other policy goals (some quite legitimate) also increases future economic growth.
- There’s a difference between government investments in the commons and government spending that primarily benefits individuals. A new airport benefits all who use it. A scientific research grant benefits the researcher and society as a whole if his research advances our understanding. A subsidized student loan is an investment in human capital, but the return on that investment accrues mostly to the student and his or her family. That’s not wrong, it’s just having a more limited effect on increasing long-term growth for society as a whole.
- Government investment in physical infrastructure is slow. The Administration learned this as they tried to force money out the door in 2009 for “shovel-ready jobs” that turned out not to be there. This doesn’t mean you don’t build roads and improve ports and airports, it just means the short-term fiscal stimulus argument for this type of spending is weak.
- Government investment in physical infrastructure is intentionally expensive because of “prevailing wage” requirements, championed by construction labor unions, that mandate the government must pay more for workers than an aggressive private firm might be able to find in the labor market.
- We should evaluate the marginal productivity benefits of additional investment. The President sometimes argues that building the national highway system was good for growth, therefore his specific proposal to increase highway spending is good for growth, too. But those are different investments, and we need to examine the marginal benefits (and rate of return) on the specific incremental investments he is now proposing. The transcontinental railroad definitely increased national economic growth, but that doesn’t mean the feds should subsidize a costly California bullet train with questionable growth benefits.
- International comparisons of government infrastructure are silly. U.S. government capital spending should be determined based on what will most increase U.S. productivity without comparison to what other countries are doing. If American ports are clogged and that is harming our trade and slowing American economic growth, then we should upgrade our ports. We shouldn’t instead improve our airports because other countries have shinier ones. We have a different geography, a different economy, and different infrastructure needs than does China, or Japan, or Dubai or France. It is crazy to suggest that the U.S. should build bullet trains because China is doing so.
- Government investment faces no market discipline. Capital investment in a private firm can face some of the above challenges—a CEO, for instance, might want a new facility built in his hometown rather than where it will produce the highest rate of return. Or a firm might reject an investment that would maximize its’ workers’ productivity because that investment is inconsistent with the firm’s broader strategic goals. But these firms ultimately face the discipline of the market to curb their excesses. Government does not, and in some cases policymakers are rewarded by their election markets to distort infrastructure investment even farther from its growth-maximizing ideal.
- Government capital investment financed by raising taxes on private capital investment will slow long-term economic growth. While in theory there probably are government infrastructure investments with very high rates of return, all of the above reasons suggest that in practice the actual rate of return on government-directed investment is going to be lower than in the private sector. If you advocate raising capital taxes (on capital gains and dividends, for instance, as Senate Democrats appear poised to do) at the same time you argue for increased government capital spending, you’re shifting capital investment from the private sector to the public sector. That will slow long-run economic growth rather than increase it.
As Hennessey notes and as I second this is not a denial that “smart government capital investment can increase productivity and contribute to faster long-run economic growth.” Instead, it’s an argument for caution but also for more thought about how to make government investment smarter. See also Tyler’s related comments.
This is an essential read and I agree with Sachs by at least two-thirds; he is on target with his remarks about “crude Keynesianism” and also the desirability of a much longer-term perspective for government spending decisions. Here is one of many excellent paragraphs:
One of the Obama arguments at the time was that the rush in the stimulus program was needed to avoid a Great Depression. This was and is highly doubtful (though, yes, it is widely accepted). The US economic emergency in late 2008 and early 2009 wasn’t really an aggregate demand crisis but a financial crisis. The chaotic failure of Lehman Brothers had led to an intense panic and credit squeeze. The Fed therefore needed to flood the markets with liquidity, which it rightly did, in order to unwind the panic. The Fed’s action was the real difference with 1933 (when the Fed allowed the banks to fail). It was the Fed, not the fiscal stimulus, which prevented a fall into depression.
Third, crude Keynesians like Krugman believe that we don’t have to worry about the rising public debt for many years to come, perhaps well into the next decade. This is remarkably shortsighted. The public debt has already soared, from around 41 percent of GDP when Obama came into office to around 76 percent of GDP today (and with no lasting benefit to show for it). If Krugman had his way, and deficits were not restrained, the debt-GDP ratio would already be above 80 percent by now and would be rising rapidly towards 90 percent and above (as shown in the recent CBO alternative scenario).
Read the whole thing. The article has many of the best paragraphs I have read this year, for instance try the one on the “spending is spending” view:
This approach is disastrous both politically and economically. Progressives like myself believe strongly in the potential role of public investments to address society’s needs – whether for job skills, infrastructure, climate change, or other needs. Yet to mobilize the public’s tax dollars for these purposes, it is vital for government to be a good steward of those tax dollars. To proclaim that spending is spending, waste notwithstanding, is remarkably destructive of the public’s trust. It suggests that governments are indeed profligate stewards of the public’s funds.
…local residents and city officials developed a plan to force convicted sex offenders to leave their neighborhood: open a tiny park.
Parents here, where state law prohibits registered sex offenders from living within 2,000 feet of a school or a public park, are not the only ones seizing on this approach. From the metropolis of Miami to the small town of Sapulpa, Okla., communities are building pocket parks, sometimes so small that they have barely enough room for a swing set, to drive out sex offenders. One playground installation company in Houston has even advertised its services to homeowners associations as an option for keeping sex offenders away.
In many cities sex offenders are finding it hard to live anywhere at all, or they cluster in a few park-less neighborhoods. The article is, as they say, interesting throughout.
So, my libertarian devotees of evolutionary psychology, you can’t have it both ways. If feminism is wrong to think we can and/or should resist the dispositions that evolution has given us, then why is it wrong for defenders of the classical liberal order to think we can and/or should resist those dispositions when it comes to our evolved instincts toward the morality of socialism? Or put the other way around: if resisting our evolved moral instincts and obeying the rules of just conduct work to generate a civilized, cooperative economic order, why should gender issues be any different?
That is from Steve Horwitz.
No, this post isn’t about Say’s law. It’s about the economics of zombies. Glen Whitman and James Dow are editing a book, to be published by Rowman & Littlefield, that will examine the economics of the undead, especially zombies and vampires.
Ideal contributions will use economic reasoning to address issues related to the undead, use the undead as a means of exploring economic thought, or both. Abstracts and final essays should be written in an accessible and engaging style for a popular audience. Contributions should also make relevant reference to the undead in pop culture, such as the Twilight saga, Buffy the Vampire Slayer, the novels of Anne Rice, World War Z, the films of George Romero, True Blood, and The Walking Dead.
Possible topics include: supply and demand in the market for blood; the operation of zombie labor markets; the political economy of responding to undead threats; macroeconomic recovery after a zombie apocalypse; what zombie and vampire behavior tell us about rational-choice modeling; etc.
The editors are soliciting abstracts for potential papers, submission guidelines are here.
From Peter Coy, source here. (And broken down by age here, I never find that disaggregation reassuring however, since the elderly are working more and the young less.) Here are related comments and charts from Dylan Matthews. Yet perhaps Felix Salmon has the clincher:
The number of multiple jobholders rose by 340,000 this month, to 7.26 million — a rise larger than the headline rise in payrolls. Which means that one way of looking at this report is to say that all of the new jobs created were second or third jobs, going to people who were already employed elsewhere. Meanwhile, the number of people unemployed for six months or longer went up by 89,000 people this month, to 4.8 million, and the average duration of unemployment also rose, to 36.9 weeks from 35.3 weeks.
By the way, my point is not to deny the “good news” aspects of the report, as summarized by Matthews and discussed elsewhere. I would instead put it this way: we are recovering OK from the AD crisis, but the structural problems in the labor market are getting worse. It’s becoming increasingly clear those structural problems were there all along and also that they are a big part of the real story. On the AD side, mean-reversion really is taking hold, as it should and as is predicted by most of the best neo-Keynesian models.
Venezuela’s oil output has fallen by almost a third since Chavez took power. That’s why Venezuelan economic growth is pretty underwhelming. Those social programs so beloved of Nation writers came out of investment funds that were previously used to keep oil production high–necessary, as we’ve discussed, because Venezuela’s sludgy crude is hard to get out of the ground. Which gives us a paradox: Venezuela’s reserves are growing, but its production is in decline.
The only reason that the economy isn’t worse is that oil prices have stayed high. But with production falling, Venezuela doesn’t just need high oil prices, but continuously rising oil prices, to keep funding all that government spending. This is why Venezuela has been one of the hawkiest hawks in OPEC, always agitating for tighter quotas and higher prices. A country with falling production doesn’t need to worry about tighter quotas. But they do need to worry that lower prices will throw their budget disastrously out of balance.
Here is more, devastating throughout. Here is the closer:
Politically, what Chavez did was successful. But that success came at the cost of the future. Instead of building a more stable foundation for long-term prosperity, Chavez started cutting chunks out of the house and handing them out to the crowd. Socialists, especially, take note: he essentially destroyed one of the most competent, successful, state run companies in the world. Thirty years from now, that–and not the transitory social programs that were thereby funded–will be his real legacy to Venezuela.
The always-insightful Matt Yglesias discusses the benefits and propriety of writing for free.
I would add that I see the new “writing for free” model as changing in (at least) two ways. First, high living costs make it harder to leverage the patronage of writers into significant impact. There will arise new arrangements where newbies are offered 15k a year to go blog from the Yucatan, or somewhere else with low living costs but ok broadband. Foundations or donors will pick up the bill and the newbies will consider the country to be an adventure not a burden. The “winners” of these tournaments will end up with jobs similar to Matt’s. Some people, especially those with “lender of first resort” parents, will manage to cover a Brooklyn lifestyle with the 15k.
Second, one’s choice of spouse will matter increasingly for journalism and also commentary. The returns to a good marriage will rise. Look for on-line writers to become slightly more establishment, slightly more romantic, and just a wee bit closer to the philosophy of Ross Douthat, minus the enthusiasm for a higher birth rate of course.
2. Are migrants happier? (Don’t forget about their children, by the way)
6. Cute animal pictures, or toward a theory of facial affect, via Michelle Dawson.