Month: April 2013
Trade vs. technology, in terms of their labor market effects
Here is the new paper by David Autor, David Dorn, and Gordon Hanson, “Untangling Trade and Technology: Evidence from Local Labor Markets”:
We analyze in a common framework the differential effects of trade and technology on employment patterns in U.S. local labor markets between 1990 and 2007. Labor markets whose initial industry composition exposes them to rising import competition from China have experienced significant employment reductions particularly in the manufacturing sector and among non-college-educated workers. These employment losses are not limited to manual production jobs but also affect clerical and managerial occupations. Labor markets that are susceptible to computerization due to specialization in routine task-intensive activities have neither experienced an overall decline in employment, nor a differential change in manufacturing employment. However, the occupational structure of employment of these labor markets has polarized within each sector, as employment shifted from routine clerical and production occupations to more highly skilled managerial or professional occupations, as well as to lower skilled manual and service occupations. While the effect of trade competition is growing over time due to accelerating import growth, the effect of technology seems to have shifted from automation of production activities in the manufacturing sector towards computerization of information-processing tasks in the service sector.
Assorted links
1. The economy that is Singapore, cruises for pets.
3. U.S. infrastructure is better than you think.
5. China markets in everything, selling the phone numbers of foreign correspondents.
6. What is Europe’s most important renewable energy source? Wood, it turns out (there is a great stagnation).
*Political Arithmetic*
The authors are Robert Fogel, Enid M. Fogel, Mark Guglielmo, and Nathaniel Grotte, and the subtitle is Simon Kuznets and the Empirical Tradition in Economics, on target as one might expect.
Psychic Harm, Repugnant Conclusions and Presumed Consent
Steven Landsburg’s post on psychic harm has created a firestorm of controversy. Many people don’t understand thought experiments and that is part of the problem but it was also a bad idea to combine hypotheticals with a real case involving a real victim. Nevertheless, Landsburg’s post raised important questions about how pure psychic harm (“I don’t like the thought of other people having gay sex.”) differs from a physical transgression without physical harm (rape of someone who is unconscious and which leaves no trace). The point is not about rape but about whether and why (some?) psychic harms should count in the moral calculus. As David Friedman argues, how we answer this question has deep implications.
Moreover, Landsburg’s stark hypothetical is closer to a real policy question than many might imagine. Consider the issue of presumed consent for organ donation, the policy used by many European countries where someone who dies is presumed to have agreed to be an organ donor barring evidence that they opted out. There are good (not necessarily definitive) arguments for presumed consent, namely that it would save some lives at low cost. After all, what harm can be said to occur from taking organs from a dead person? The latter point is obvious to me but it’s only obvious because I think the dead can’t be harmed. Other people, think differently Many religions consider cadaveric organ donation to be a kind of desecration. In fact, some people liken presumed consent to rape of the unconscious. Professor Hugh V McLachlan for example writes:
if someone had sex with an unconscious woman and tried to justify his action by saying that, when she was conscious, she did not indicate that she did not want to have sex, we would not accept this as a reasonable argument. The notion of presumed consent to the use of our organs after our deaths is no more reasonable.
and another commentator on presumed consent in Britain says
The difference between voluntary consent and presumed consent is at least the difference between consensual sex and rape of a drunk person.
Evidently for some people being dead is similar to being unconscious. Thus in both cases physical harms without physical consequence can be wrong because they generate psychic harm, either in expectation or in the afterlife. Clearly, distinguishing which psychic harms are to be counted and which not quickly becomes a question of metaphysics.
My own view is that as far as possible psychic harms should not be counted at all. Instead I would let ethics dictate the assignment of property rights and economics dictate the allocation. In particular, I would assign body ownership to the individual on strong libertarian and autonomy grounds but I would let individuals sell a kidney (or sex).
One of the virtues of markets is that markets make people pay for their preferences, if only in terms of opportunity cost. My suspicion is that the psychic harm from the thought that after death one’s organs might be used by someone else would quickly dissipate once some cash was on the table. Indeed, it’s often the case that the least cost way to avoid a psychic harm is to change one’s mind and, to paraphrase Upton Sinclair, it’s easier to get a man to change his mind when his salary depends upon him changing his mind.
Some thoughts on recent Japanese monetary policy
I would add a few points to the other discussions:
1. If I understand the announcements correctly, this is still only a two percent inflation target, so it’s not going to end in hyperinflation. The arguments against this new policy simply aren’t that strong and there is a chance it helps.
2. Most of all, we sorely lack a better understanding of how money matters when it does matter. Are we actually to believe that after decades of slow growth, nominal wages remain too high, even though most individuals have retired, changed jobs, died, changed job descriptions, and so on? Wages do eventually get reset, even in sticky wage models. The conditions of jobs change even when the nominal wage doesn’t. So why should the notion of sticky wages be very relevant here?
2b. The rate of unemployment in Japan, last I checked, was 4.1%. Yes, they calculate it differently than we do, and yes in their heyday they had an even lower rate of unemployment. But still, ask yourself: just how labor market slack is there going to be?
3. An alternative is that money will boost real economic activity through a Lucas supply curve combined with a fair degree of money illusion, which is what you would expect from a longstanding deflationary environment. Businesses will confuse nominal changes with real changes, raise output, and eventually figure out the confusion and restrict output again. The economy does get to keep a one-time gain (probably there are positive social externalities to higher output in this setting), but it doesn’t drive an enduring recovery.
4. I should be seeing at least a dozen blog posts with titles like: “Japanese monetary policy: sticky wages or Lucas supply curve?” and the like. I’m not.
5. The fact that the Japanese stock market has risen with the new announcements does not much impress me. First, there is a simple story in which the inflation redistributes wealth to exporters and away from consumers, without raising longer-term living standards. Second, stock markets will trade on many different kinds of “noise,” including surprise announcements from central banks.
6. I’ve never read a paper on the Fisher effect in Japan, but usually there is not a complete Fisher effect in most developed countries. This policy could thus redistribute wealth from the elderly to the young, and through that (non-traditional) channel also boost economic growth.
In short, the recent developments are good news, but you shouldn’t have a great deal of confidence about their efficacy.
Undesirable trends in the labor force participation rate
From Cardiff Garcia, here is more.
Experimental economics and Moliere’s *Tartuffe*
From Bertrand Crettez and Régis Deloche, forthcoming in JEBO:
Numerous papers show how game theory can improve our understanding of literature. There is no paper, however, using experimental economics to arrive at a new understanding of a play. We fill this gap by using experimental evidence to compare the last two versions of Molière’s Tartuffe. In the final version of the play, there are two stag hunt games, one without pre-game communication and one with. In the first game players fail to coordinate to the efficient equilibrium but in the second one they do, which is consistent with experimental evidence. In the penultimate version of the play, there is pre-game communication in the first stag hunt game but players fail to coordinate to the efficient equilibrium, which is not consistent with experimental evidence. By removing the pre-game communication from the first game, Molière adapted his play as if he had been a student of modern behavioral game theory.
Assorted links
1. The world’s smallest robotic cleaner.
2. Henry on Fisman and Sullivan’s The Org.
3. Why don’t tech entrepreneurs buy more contemporary art?
4. The economics of witchcraft trials in the Congo.
5. The marketing of Magnus Carlsen.
6. Ian Cameron on the three-axes model, which I consider to be essentially true.
Margaret Thatcher has passed away
Very sad news of course, it is hard to even know what to say, you can follow obituaries and comments on Twitter here.
On YouTube, here is Thatcher and Buckley. Here is a list of the 364 economists who signed a petition objecting to Thatcher’s macroeconomic policies. Here is a good Bartlett piece on Thatcher, who by the way raised taxes overall.
It’s all about supply and demand, not just demand
The unexpectedly large number of American workers who piled into the Social Security Administration’s disability program during the recession and its aftermath threatens to cost the economy tens of billions a year in lost wages and diminished tax revenues.
Signs of the problem surfaced Friday, in a dismal jobs report that showed U.S. labor force participation rates falling last month to the lowest levels since 1979, the wrong direction for an economy that instead needs new legions of working men and women to drive growth and sustain a baby boomer generation headed to retirement.
Michael Feroli, chief U.S. economist for J.P. Morgan, JPM +0.88% estimates that since the recession, the worker flight to the Social Security Disability Insurance program accounts for as much as a quarter of the puzzling drop in participation rates, a labor exodus with far-reaching economic consequences.
Here is more, from Leslie Scism and Jon Hilsenrath. And there is this:
Of the nearly nine million former workers receiving federal disability payments, more than 2.5 million are in their 20s, 30s and 40s.
“It is difficult to overstate the role that the SSDI program plays in discouraging” employment among these young people, Messrs. Autor and Duggan said in one of their research papers, urging reform.
“Could this euro have been made out of ice?”
It is becoming increasingly clear that moves out of the euro will be done furtively, sometimes gradually, and most of all non-transparently. At some point we’ll start arguing over whether “the euro” is a “rigid designator.”
First Cyprus has capital controls and now Portugal may be making a different kind of plunge:
The Portuguese government is considering a plan to pay public workers and pensioners one month of their salary in treasury bills rather than cash after a high court ruled out wage cuts…
Of course these “treasury bills” (is that a rigid designator?) will have a floating price with respect to the euro, with respect to the “euro trapped in a Portuguese bank” (eventually), and other Portuguese treasury securities for that matter. Which will be the real money of Portugal?
If indeed this happens (one government spokesperson has denied the report) and perhaps then continues, at what point do we conclude that the Portuguese have opted for a dual currency?
Would the new scrip currency push out the euro or vice versa or can they coexist? One central question is at what rate the government would accept the new scrip for payments and taxes or otherwise offer to redeem or convert it.
Another question is banking confidence. If the new scrip goes badly, that may lower confidence in the Portuguese banking system. If the new scrip goes well…that may also lower confidence in the Portuguese banking system. The government will issue more of it and it will come closer to a dual currency. Bank accounts denominated in euros may become less credible in terms of their underlying protection. Once a new alternative currency is up and running, Portugal can leave the euro much more easily, converting bank deposits into the new currency along the way to ease their fiscal crunch. After the Cyprus episode, they are probably counting less on help from others.
Ideally the Portuguese government would like to be in a position of promising that the new script will be retired/repurchased within a month or some other very short time frame.
That’s not usually how it ends up working.
Garett Jones offers related comment. Here are a few remarks on lecterns made of ice.
What I’ve been reading
1. Jonathan Sperber, Karl Marx: A Nineteenth Century Life. The title is apt. This is an excellent and very readable account of Marx’s life, although it strikes me as superficial on the ideas side.
2. Diane Wood Middlebrook, Anne Sexton: A Biography. I hadn’t known that Sexton once threw her toddler daughter against the wall in a fit of anger. A lot of people still found her fun to hang around with.
3. Diane J Bleyer, A Mother’s Right. A science fiction story based on premises of population decline, highly volatile weather, illegal abortion, and a stolen unborn child.
4. David E. Nye, America’s Assembly Line. A very good history, economic and otherwise, of precisely what the title purports to offer and kudos on the absence of a subtitle.
5. Christopher A. Whatley, Scottish Society, 1707-1830, Beyond Jacobitism, Toward Industrialisation. I am often asked what is a good introduction to the time and writings of Adam Smith. Such a book is oddly hard to come by but this is one of the best candidates.
Assorted links
2. 狗狗穿丝袜 (not recommended).
3. InTrade is facing liquidation.
4. Superfluid transport of information in turning flocks of starlings (pdf); “We argue that the link between strong order and efficient decision-making required by superfluidity may be the adaptive drive for the high degree of behavioural polarization observed in many living groups.”
5. In praise of Baiersbronn (and German food).
Australia to Compensate Organ Donors
Australia once again proves that it is a world leader in innovative public policy with an experimental plan to compensate (living) organ donors.
Workers who want to donate a kidney will be offered up to six weeks’ paid leave under a federal government plan to reduce the waiting list for life-saving organs.
Health Minister Tanya Plibersek and parliamentary secretary for health and ageing Shanye Neumann say the government will put up $1.3 million over two year for a trial that will be reviewed in 2015.
Ms Plibersek says living donors will be paid six weeks on minimum wage, totalling up to $3600, to help take the financial pressure off before and after the major surgery.
…the scheme is one step towards bridging the gap between the number of kidney donors and recipients.
The proposed experiment does, however, contains a peculiar restriction which is worth highlighting because it illustrates a tension between economics and ethics, at least ethics as conventionally understood (e,g, Michael Sandel). The compensation “will only be available to donors who have a job.”
The idea, I believe, is to avoid any hint of “exploitation” or “pecuniary coercion.” The problem is that another word for pecuniary coercion is incentive. Thus, the goal is to increase the supply of organs without creating an incentive to supply organs, at least not a strong incentive. To help navigate this invisible line the amount paid is low and the only people who can receive compensation are the ones who don’t need the money. In short, the plan discriminates against the unemployed so that no one can accuse the government of exploiting the unemployed by giving them too much money.
Nevertheless, although the amount is small and restricted, Australia’s willingness to experiment with the idea of compensation in order to save lives is laudable and potentially groundbreaking.
Hat tip: Andrew Leigh.
Addendum: For other innovative approaches to the worldwide shortage of transplant organs see my articles here and here.
Edward Luce has lunch with Michael Sandel
I ask Sandel whether he does anything in his own life to make the world less money-minded. He begins a couple of answers but peters out. I suggest that he makes all his lectures free online. “Yes, that’s one thing,” he agrees. After our lunch I see that Sandel is listed on Royce Carlton, a speaker’s agency, as one of its big names (without apparent irony, a posting by the agency last year said Sandel was available to lecture “at a reduced fee in conjunction with his new book, What Money Can’t Buy”).
The rest of the meal is presented here, possibly behind an FT gate; Sandel opted for Legal Seafood and Luce ordered fish and chips.