Month: May 2013
What have been the results from Jamaican fiscal policy?
Here is the update:
Over 40 years, Jamaica has been “rescued” on countless occasions. In the 1980s, the island became almost a byword for “structural adjustment”. Jamaica is one of the most indebted countries, spends twice as much on debt repayments as it does on education and health combined, and looks set to miss several millennium development goals (pdf). After four decades of austerity, the country has a few lessons for the likes of Greece, Portugal and Ireland.
The IMF has announced a $1bn (£650m) loan to “help” Jamaica meet huge debt payments due in coming years. As usual, the loan is to be accompanied by four years of austerity – precise details still pending, though a pay freeze, amounting to a 20% real-terms cut in wages, has been agreed.
This austerity will be applied to an economy that has effectively not grown since 1990. Huge debt has been a constant burden, with foreign debt payments of more than 20% of government revenue every year. When the financial crisis hit, the island was pushed into full-scale recession, before being pounded by Hurricane Sandy last year.
It seems nothing good is pending, economic growth is negative, and the debt to gdp ratio is 143%. I take it we can agree this is one case where stimulating nominal demand will not bring much in the way of dividends? Do we agree? Last year the inflation rate was over ten percent and the (nominal) exchange rate hit new lows. Do note the country ran a primary surplus last year and is attempting to move toward a balanced budget, so does anyone wish to pin this mess on fiscal austerity? Or is their austerity and its observed failings a symptom of other policies which went badly wrong?
The measured government budget deficit is about 6.1% of gdp, but I suspect if you start the calculation in 1990, in “cyclically adjusted terms” Jamaica will appear to be running a huge surplus and a very tight fiscal policy. After all, I do see unemployment estimates in the range of 13 to 14 percent. Isn’t that a classic sign of deficient aggregate demand?
I do wonder if we can agree on this case. And if we agree on this case, which more general lessons might we draw about the difficulty of inference from data…?
Addendum: This is a post about Jamaica and also about macroeconomic inference. If you are tempted to write a post in response, criticizing me on the grounds that I am postulating a historical equivalence between the United States and Jamaica, or if you try to cover your tracks with semantics, by suggesting that I am “implying” such an equivalence, or implying some other mistake, or if you are committing any number of other fallacies or equivocations in response to this post, put on the dunce cap and go to the back of the class. Please consider this a general warning to be attached to everything written by me on this site.
Extra: Ashok Rao offers good commentary on Jamaica (and India).
Are food stamps the best macro stabilizer?
I have not read the underlying paper, but this summary seemed interesting enough to pass along, via Evan Soltas:
In a new working paper, Ricardo Reis of Columbia University and Alisdair McKay of Boston University…find that stabilizing aggregate disposable income plays a “negligible role” in stabilizing the economy as a whole. Transfer payments can indeed stabilize output, they find, but mainly through a different channel — not by changing disposable income in the aggregate, but by changing its distribution. Fiscal policy, in other words, is all about inequality.
“It’s the redistribution that has a lot of kick,” Reis said in an interview. “The usual argument for transfers is basically Keynesian. We find that has very low impact in our model.”
Reis and McKay reach this conclusion by building a complex macroeconomic model calibrated to U.S. data, but the intuition isn’t all that complicated. Transfer payments yield the highest amount of stabilization per dollar when focused on people who can’t effectively insure themselves against macroeconomic volatility — namely, people with little savings to draw on and limited opportunities to borrow.
…They also find — this is a surprise — that fiscal policy as currently designed does little to stabilize the economy. The most effective transfer programs, Reis says, constitute a small share of all transfers. “When we look at the whole set of stabilizers in the U.S., it turns out that even though food stamps are a plus, all of the other ones have near-zero impact. That means we’re not stabilizing very much,” Reis said.
If distribution matters above and beyond the disposable income variable, that might imply that the sectoral composition of fiscal policy is quite important and that sectoral factors are an important part of any stabilization (or non-stabilization) story.
Does less income mean less representation?
It is a common argument that American government is run in the interests of rich people. But Eric Brunner, Stephen L. Ross and Ebonya Washington are in this month’s AEA Economic Policy journal with a different perspective:
We assemble a novel dataset of matched legislative and constituent votes and demonstrate that less income does not mean less representation. We show: (i) The opinions of high- and low-income voters are highly correlated; the legislator’s vote often reflects the desire of both. (ii) What differences in representation by income exist vary by legislator party. Republicans more often vote the will of their higher income over their lower income constituents; Democratic legislators do the reverse. (iii) Differences in representation by income are largely explained by the correlation between constituent income and party affiliation.
Here is one version of the paper (pdf).
Assorted links
More on Apprenticeships
A very good piece on apprenticeships from Stuart E. Eizenstat and Robert I. Lerman:
…firms interested in investing in the United States are finding too few workers with the skills needed to achieve the productivity and quality required in today’s globally competitive industries. The skills gap is real… U.S. unemployment remains at 7.5 percent, and only one out of two African American men in their early 20s has a job. A survey of employers published last year revealed that about 600,000 jobs go unfilled because of a lack of skilled labor….The central answer to the mismatch between jobs and employment is a 21st-century apprenticeship program.
…Although apprenticeships yield significant earnings gains for workers, this country has too few programs, partly because of the massive bias in public spending toward a college-only approach. Government spending on colleges and universities tops $300 billion per year; outlays to apprenticeship programs total less than $40 million annually. A public-private initiative could increase competitiveness and youth employment, upgrade skills and wages, achieve positive returns for employers and workers, and reduce government spending if companies played a larger role in skills development.
As I said in Tuning in to the Dropping Out:
Why should a major in English literature be subsidized with room and board on a beautiful campus with Olympic-size swimming pools and state-of-the-art athletic facilities when apprentices in nursing, electrical work, and new high-tech fields like mechatronics are typically unsubsidized (or less subsidized)? College students even get discounts at the movie theater; when was the last time you saw a discount for an electrical apprentice?
Which athletes and entertainers choose to come out of the closet?
Here is one not inaccurate description of the professional status of Jason Collins:
Collins’s announcement in a thoughtful, first-person Sports Illustrated story has created a conundrum for the NBA, which does not want to appear intolerant but whose teams could wind up passing on Collins this offseason. While he would represent a relatively inexpensive option for a team in need of a physical defender at the veteran minimum salary of roughly $1.35 million, Collins will turn 35 in December and is at a stage in his career when declining, low-impact players are generally pushed aside.
I would put it this way. It is good news that he “came out” and he is to be applauded for his courage. Still, I am discomforted by the fact that only a male athlete on the down side of his career would be the one doing this.
Female athletes are more likely to identify as lesbian or bisexual than male athletes will identify as gay or bisexual. I suspect this does not involve a comparable fear of loss of endorsement income or mass appeal.
Could it also be that women are more open in this regard? Martina Navratilova came out in 1981 at the age of 24 and at or near the peak or her career.
Hollywood is ostensibly a more “gay tolerant” culture than is professional athletics, yet how many leading movie actors have come out as gay or bisexual? I can’t think of many. Here is one list of openly gay actors and I have not heard of most of them. The number one guy on that list is identified as “Actor, Starship Troopers.” As for the others on the list, Ricky Martin is famous but mostly a singer and Rupert Everett very often plays gay or possibly-gay characters, so his coming out presumably involved much less career risk.
Presumably if an up-and-coming actor comes out, it is hardly for that actor to get roles as a romantic lead and perhaps as an action lead in a “buddy movie” as well. If you look at this list, it seems well-known female celebrities find it easier to mix coming out with continued career success. Ellen, Rachel Maddow, Rosie O’Donnell, and Jodie Foster do not seem to have obvious male counterparts, again outside of music and figures such as Ricky Martin, Elton John, and David Bowie, and even Bowie has sent some mixed signals over the years.
For all the talk about the macho culture of professional sports, I wonder how much the problem is in fact the viewing public and the “least common denominator” imperatives of some forms of commercialized entertainment, especially when funded by advertisements. The commercial upside for male coming out is usually smaller than the downside, at least for sports and movies with built-in mass audiences, again with connections to image-conscious mainstream advertisers. If male “coming out” is easier in the world of music, it is perhaps because the product is directly financed by consumers, which implies more of a niche audience and a willingness to forgo some classes of consumers altogether. Alex and I discuss related mechanisms in our paper on avant-garde vs. popular culture (pdf).
I am happy to read about Collins. But we will be seeing much more progress when up-and-coming handsome actors, shooting for big Hollywood roles, also come out as gay. That to me still seems far away.
Aldeburgh notes
I long had imagined a perfect English seaside town and it turns out Aldeburgh is it. Attending a German-Nigerian wedding here makes it all the more so (photos of town are here).
It is more like New Zealand than any other part of England I have visited.
Other than those here for the wedding, there seem to be few non-English people walking around town. The working class people are fond of discussing the best fish and chips in the area, while one of the (apparently) visiting English women standing next to us in line started lecturing us about “Maggie the Milk Snatcher.” Even the minister performing the wedding ceremony got in a dig at Thatcher (NB: this is not not not the Vicar of Aldeburgh, who sometimes comments on national affairs, but rather a visiting minister).
In 1908 the town elected the first female mayor in England. The ships of Sir Francis Drake were built here. The Benjamin Britten homage scallop-like sculpture structure has been vandalized thirteen times and there is a petition to have it removed. A long time ago the “North Sea” was called the “German Sea.”
Once you get past London, Oxford, and the like, England is more exotic than most of the places I visit.
The local chocolate caramels go under the brand name of “Seagull Droppings,” with comparable packaging. (No need to leave this link in the comments.) You can find them in the Royal Navy store next to the water and the fishmongers.
Japan, again, better than ever
Kanon Mori, Yuki Sakura, Hinako Kuroki and Jun Amaki have been following the Nikkei 225 stock average obsessively since Prime Minister Shinzo Abe took office in December. The oldest of the foursome is Mori, but she is still only 23. The youngest is Kuroki, 16 and still in high school.
None of them are studying for a degree in economics, let alone playing the stock market. Instead, the four are members of a new idol group, Machikado Keiki Japan, and stocks play an important part in their performances.
“We base our costumes on the price of the Nikkei average of the day. For example, when the index falls below 10,000 points, we go on stage with really long skirts,” Mori explained.
The higher stocks rise, the shorter their dresses get. With the Nikkei index ending above 13,000, the four went without skirts altogether on the day of their interview with The Japan Times, instead wearing only lacy shorts.
While some have raised eyebrows over the group’s daring concept, Mori explained that they are merely letting the economy take charge of how they dress — mimicking economic trends of the past.
…Machikado Keiki Japan (roughly translated as Economic Conditions on the Streets of Japan) released their debut single, “Abeno Mix,” on April 7. It pays homage to Abe’s ultraloose economic policies that have been dubbed “Abenomics” by the media.
“Fix the yen’s appreciation. Quantitative easing. Don’t forget public investment,” a line in the dance-pop tune goes. “Monetary easing. Construction bonds. Let’s just revise the Bank of Japan Law.”
The group’s fans — who not surprisingly are 95 percent male, from high school to their 50s — have special chants that they perform during the song’s interlude.
Assorted links
1. On the economics of status.
2. Conservatives and prison reform, by Eli Lehrer.
Pandemics and public goods, and why we are failing at both
Here is my latest New York Times column, which has a specific part on how to address pandemics and a more general section on the evolving role of government in American society. In neither area are matters running especially well.
Here is one initial point, namely that it is difficult to commit to allow high prices upfront:
Research and development grants are a way to pay potential innovators up front — an important move, as an innovator can’t always charge high-enough prices for the value of its remedies when they’re actually needed.
That will lead to institutional failure, rooted in a mix of government and market failure. Therefore other rewards are needed, since the prospect of high prices does not adequately motivate. I thus call for some key drugs to be rewarded with prizes and for government to buy out the patent rights, if need be:
If anyone doubted a government pledge to pay big money for the rights to remedies, the patent’s value could be established by a competitive auction. Michael Kremer, a Harvard economics professor, outlined the procedure for such an auction in his research paper “Patent Buyouts.”
The larger problem is this:
OVER all, the American government seems to be turning its back on its traditional role of producing and investing in national public goods. If there is any consistent tendency in recent government spending, it is that spending on entitlements like Social Security and Medicare — which provide mostly private benefits — is rising and that investment and spending on national public goods is falling.
Do read the whole thing. I also suggest that (non-paternalistic) public health could be a suitable health care issue for Republicans, who presumably should be looking for alternatives to the status quo.
There are by the way two points which did not make the final cut for reasons of space. First, the current coronavirus in Saudi Arabia has not gone away as a source of potential problems. Second, the Bush Administration (43) did take some notable steps to return vaccine capacity to the United States, through both regulatory forbearance and HHS procurement. These are likely good policies since in a pandemic one cannot expect to rely on free international trade in a remedy but rather export controls are to be expected.
Claims about time
Alan Lightman relates some ideas from the new Lee Smolin book:
He [Smolin] goes on to propose a variety of revolutionary ideas to codify further his notion of “real time.” In one, he suggests that every atom in the universe is causally connected to every other atom in the universe, no matter how many light-years away. According to his notion, the failure of standard quantum mechanics to predict the behavior of individual atoms arises from the fact that it does not take into account the vast numbers of interconnections extending across the universe. Furthermore, this picture of the cosmos requires an absolute time (in violation of relativity), which he calls “preferred global time.”
One of Smolin’s most astonishing ideas is something he calls the “principle of precedence,” that repeated measurements of a particular phenomenon yield the same outcomes not because the phenomenon is subject to a law of nature but simply because the phenomenon has occurred in the past. “Such a principle,” Smolin writes, “would explain all the instances in which determinism by laws work but without forbidding new measurements to yield new outcomes, not predictable from knowledge of the past.” In Smolin’s view such unconstrained outcomes are necessary for “real” time.
Assorted links
1. Carroll and Frakt on policy implications of the Oregon Medicaid study, and more from Megan McArdle. Jonathan Chait favors puppies.
2. Brooklyn pub dare not prefer the British.
3. Generator powered by gravity? Photo here, caveats out the wazoo…
4. Agile robot the size of a fly (needs a power source).
5. New $30 million art museum for UC Davis.
Jeremy Bentham’s *Not Paul, but Jesus, vol. III*
Bentham’s famous defense (or should I say advocacy?) of homosexuality and other non-traditional sexual and romantic relationships — he describes them as the “eccentric mode” — is now available in its entirety, for the first time I believe. Here is a blog post about the new publication. It is a fascinating work throughout and homosexuality is central to his answer to Malthus and the dangers of excess population.
The full text is freely available here (pdf), about two hundred pages. Here is one typical excerpt:
Yet by such a multitude of those who would start with horror at the very mention of a gratification afforded to the sexual appetite in any eccentric mode, how compleatly dissolute and unlimited is the indulgence afforded to the appetites of which the organs of taste and smell are the instruments, and how enormous is the expence at and by which this indulgence is so constantly and regularly procured.
By those by whom, to the pleasures of the table, no limits are attempted to be set other than those set, as above, by the allied considerations [of] self-regarding prudence and benevolence, why to the pleasures of the bed should any narrower limits be assigned? With what consistency can any difference be made in the extent given to the limits in the two cases? So much as to the question between the pleasures of the table taken in the aggregate on the one part, and the pleasures of the bed on the other.
Has Andrew Sullivan read this book? Through jstor, here is a related David M. Levy piece.
How easily can a small country produce above capacity?
Paul Krugman raises that question in connection with the Baltics. In contrast to Krugman’s claim, I would think it is especially easy for small, open economies to produce “above capacity,” if only because resources can flow in from abroad.
As I understand the case for capital controls, recently endorsed by Krugman, that case almost requires a notion of an economy “heating up” in an “unsustainable” fashion; otherwise what’s the worry with the capital inflow? Better to have the capital than not, unless you fear unsustainability. (Don’t, by the way, be shocked if people who totally reject the rationale behind the capital controls idea are also inconsistent on this point and wish to argue that the Baltics were unsustainably over capacity.)
Imagine a lot of capital flows into a small, open economy, but based on unrealistic assessments of risks and future prospects. Economic activity will be much higher. Labor will come back home or reject what would otherwise be a decision to leave. A lot more will be produced, at least temporarily.
Eventually foreign investors come to their senses and the whole process goes in reverse. Now that foreign investors have learned their lessons, and withdrawn their capital and their ambitious plans for the future, the small economy cannot easily get back to where it was, at least not anytime soon. To my eye this process and its unraveling seems fairly simple to grasp. The fact that lots of labor is leaving, as has been the case in Latvia, if anything supports the plausibility of this scenario.
If you are focused on per capita effects, capital may move faster than labor, there may be ranges with increasing returns to scale, it may be the more productive workers who can leave, and momentum effects, among other possible mechanisms.
I also would reject any hard notion of “capacity” and view the matter as a sliding scale, depending on expectations and how much risk and fragility investors and suppliers of labor are willing to accept; see my Risk and Business Cycles for more on this point.
Assorted links
1. Quandl searches economics and financial databases.
3. Anatomy of a robocar accident.
4. Child guesses the plots of classic novels, based on book covers, via Yana.
5. The dining culture that is Missouri.
6. Summers and Hubbard on basketball and economics, but Davidson is the real star here. And will we eradicate global poverty?