Month: May 2013
3. Ross Douthat, on the relationship between social and economic inequality.
6. www.thecorner.eu, new English-language site on EU economics, from Spain.
Thousands of the finest automobiles ever made are now being abandoned every year since Dubai’s financial meltdown, left by expatriates and locals alike who flee in a hurry because they face crippling debts. With big loans to repay to the banks (unpaid debt or even bouncing a cheque is a criminal offence in Dubai), the panicked car owners make their way to the airport at top speeds and leave their vehicles in the car park, hopping on the next flight out of there, never to return…
Ferraris, Porsches, BMWs, Mercedes are regularly abandoned at the car park of Dubai International Airport, some with loan documents and apology notes simply left on the windscreen and in some cases with the keys still in the ignition.
…Residents complain about the unsightly vehicles hogging parking spaces at the airport and sitting slumped outside their fancy yacht clubs– it’s like, so not a good look.
Edmund Burke: The First Conservative, by Jesse Norman.
Charles Moore, Margaret Thatcher: The Authorized Biography. I’ve browsed some of it, it looks really quite good, noting that in general authorized biographies bore me.
Sheila Miyoshi Jager, Brothers at War: The Unending Conflict in Korea, the Korean conflicts in broader global perspective. Good advance reviews, looks interesting on a browse.
Economic Theory of Greed, Love, Groups, and Networks, by Paul Frijters with Gigi Foster.
Higher Education Minister Genevieve Fioraso this past week introduced a bill that would allow French universities to teach more courses in English, even when English is not the subject. The goal, she explained, is to attract more students from such countries as Brazil, China and India, where English is widely taught, but French is reserved largely for literature lovers.
“Ten years ago, we were third in welcoming foreign students, but today we are fifth,” she said in a Q&A in the magazine Nouvel Observateur. “Why have we lost so much attraction? Because Germany has put in place an English program that has passed us by. We must make up the gap.”
Yet it has sparked cultural and nationalist outrage — not only from Paris intellectuals but also from several dozen members of Parliament, opposition as well as Socialist, who insist that learning French should be part of any foreign student’s experience in France.
From Jacques Attali:
“Not only would such a reform be contrary to the Constitution (which provides in its Article 2 ‘the language of the Republic is French’), but you cannot image an idea that is stupider, more counterproductive, more dangerous and more contrary to the interest of France,” he intoned in a blog.
There is more here. On one hand, on-line education makes fluency in English more important for plugging into dominant networks. On the other hand, technologies of easier subtitling and dubbing may keep other languages in contention. Still, I predict the former effect will win out, just as the internet has boosted English more generally, with or without Google Translate. The internet has indeed done a good deal to preserve, record, and ultimately transmit true minority languages, Nahuatl being one example of many, but it has not elevated them into general media of instruction.
The author is Ron Unz, and the topic is what the media chooses to cover or not. His thoughts run in directions very different than mine (I favor invisible hand mechanisms to a much greater degree, for one thing), but here is the essay.
It is entitled “Our American Pravda.” It is difficult to summarize. Maybe some parts of this essay are totally, completely wrong, so I urge you to read it with caution. But still I thought it was worth passing along; if nothing else you can read it as a study in how a situation can look “very guilty” even if perhaps it is not.
One excerpt is this:
These three stories—the anthrax evidence, the McCain/POW revelations, and the Sibel Edmonds charges—are the sort of major exposés that would surely be dominating the headlines of any country with a properly-functioning media. But almost no American has ever heard of them. Before the Internet broke the chokehold of our centralized flow of information, I would have remained just as ignorant myself, despite all the major newspapers and magazines I regularly read.
Am I absolutely sure that any or all of these stories are true? Certainly not, though I think they probably are, given their overwhelming weight of supporting evidence. But absent any willingness of our government or major media to properly investigate them, I cannot say more.
However, this material does conclusively establish something else, which has even greater significance. These dramatic, well-documented accounts have been ignored by our national media, rather than widely publicized. Whether this silence has been deliberate or is merely due to incompetence remains unclear, but the silence itself is proven fact.
The original pointer came from @GarethIdeas, who describes the piece as “totally fascinating.”
In the United States, Julie Phillips, a sociologist at Rutgers University, was among the first researchers to frisk these middle-age suicides for deeper meaning. In 2010 she and a colleague declared the age range a new danger zone for self-harm. Many commentators took this as another fun fact about the boomers, not a cause for general alarm. But earlier this month, Phillips presented the results of a second paper, an attempt to settle the question of whether the boomers were especially suicidal. She sifted through eight decades of U.S. suicide data, wrenching it to separate the influence of absolute age, peer effects, and the events of the moment, and she found something shocking: the boomers have the highest suicide rate right now, but everyone born after 1945 shows a higher suicide risk than expected—and everyone is on pace for a higher rate than the boomers.
Here is more on that topic. There is also this:
In her next bundle of research, Phillips hopes to pinpoint the massive, steam-rolling social change that matters most for self-harm. She has a good list of suspects: the astounding rise in people living alone, or else feeling alone; the rise in the number of people living in sickness and pain; the fact that church involvement no longer increases with age, while bankruptcy rates, health-care costs, and long-term unemployment certainly do.
4. Quick quiz: did this help Spain or hurt Spain?
6. SAP pledges to hire 1% autistics (I predict they are already there).
Here is one typical complaint about bubbles, from Jesse Eisinger, excerpt:
We are four years into the One Percent’s recovery. Now, we are in Round 3 of quantitative easing, the formal term for the Fed injecting hundreds of billions of dollars into the economy by purchasing longer-term assets like Treasury bonds and Fannie Mae and Freddie Mac paper. What’s that giving us? Overvalued stocks. Private equity firms racing to buy up Arizona real estate. Junk bond yields at record lows. Ratings shopping on structured financial products.
These are dangerous signs of prebubble activity.
Here is a Krugman rebuttal. I will offer a few points on a series of debates which in general I have stayed away from.
1. I don’t find most predictive discussions of bubbles interesting, while admitting that such claims often will prove in a manner correct ex post. “OK, the price fell, but was it a bubble? I mean was there froth, like on your Frappucino?” Or to quote Eisinger, it might also have been “dangerous signs of prebubble activity” (what happens between the “prebubble” and the “bubble”? The “nascent bubble”? The “midbubble”? The “midnonbubble”?)
2. Good news and improving conditions may well bring more bubbles or greater likelihood of bubbles, but that is hardly reason to dislike good news and improving conditions.
3. Relative to measured real interest rates, stocks look cheap right now. That doesn’t mean they are, but reread #1.
4. No one understands the term structure of interest rates, no matter what they tell you. Reread #1.
5. I don’t see why anything particular about the current state of affairs, at least in the United States, needs to be “unwound.” I sometimes draw a distinction between those of us who have been thinking about interest on reserves since S. Tsiang, Fischer Black, and the Reserve Bank of New Zealand, and those of us who have not.
6. One coherent definition of bubble is that of a hot potato, traded in a world of heterogeneous expectations, but which must ultimately pop, because eventually the price of that asset will consume all of gdp, a bit like those old Tokyo parking spots. Fair enough, but I don’t see that in many asset markets today if any (Bitcoin for a while?).
7. Another coherent definition of a bubble has less to do with a dynamic price path and ongoing resale for gain, but rather there may be a (temporary) segmentation across classes of asset market buyers. The obvious candidate here is that many people and institutions have been frightened into Treasuries and away from almost everything else. That could mean we have a real interest rate bubble, but it also could mean that lots of other assets are undervalued, at least if the liquidity effect defeats the higher real interest rate effect of moving out of Treasuries. (It would be odd to think that a shift of funds out of Treasuries and into stocks would cause stock prices to fall, but perhaps some people fear this.)
I don’t agree with this view, but I do feel I understand it. The most likely “bubble” is then in real interest rates, due to a (temporary?) skewing of the risk premium. That all said, I do not think this should be called a bubble. Changes in the risk premium and “bubbles” have traditionally been considered alternative explanations for asset prices. Reread #1, and reread #4 while you’re at it.
8. Ruchir Sharma made some interesting points yesterday:
Far from fighting off a deluge of foreign capital, leaders from India to South Africa are struggling to attract a greater share of global capital flows in order to fund widening current account deficits. Over the past decade, the foreign exchange reserves of the developing world grew at an average annual rate of 25 per cent, swelling from $570bn in 2000 to $7tn in 2011. But over the past year, the average rate slowed to a crawl of barely 5 per cent.
The idea that money is still flooding emerging markets misses the big picture, which is that global cross-border capital flows are down 60 per cent from their 2008 peak. The largest shares of cross-border capital flows are in bank loans, trade and foreign direct investment, which are slowing worldwide.
9. I expect the real economy over the next twenty years to be more volatile than it was say in the 1990s. In that sense, many current asset market prices may be revised and quite dramatically. Still, I don’t find the bubble category to be so useful in this regard. We really don’t know what is going to happen and that is why the current prices are wrong, not because of a “bubble.”
10. I am probably done blogging about bubbles for a while. Satisfying you was not the goal of this post, but that is in the nature of the subject area, not out of any desire for spite.
This is the kind of argument which no one will successfully rebut, but no one really will take on and adopt either. Does that mean we are defective? Or is there simply ineffable wisdom in “how things have been done”? Must we keep closed all Pandora’s boxes?
Here is the abstract from Mark L. Egan, Casey B. Mulligan, and Tomas J. Philipson:
Many national accounts of economic output and prosperity, such as gross domestic product (GDP) or net domestic product (NDP), offer an incomplete picture by ignoring, for example, the value of leisure, home production, and the value of health. Discussed shortcomings have focused on how unobserved dimensions affect GDP levels but not their cyclicality, which affects the measurement of the business cycle. This paper proposes new measures of the business cycle that incorporate monetized changes in health of the population. In particular, we incorporate in GDP the dollar value of mortality, treating it as depreciation in human capital analogous to how NDP measures treat depreciation of physical capital. We examine the macroeconomic fluctuations in the United States and globally during the past 50 years, taking into account how depreciation in health affects the cycle. Because mortality tends to be pro-cyclical, fluctuations in standard GDP measures are offset by monetized changes in health; booms are not as valuable as traditionally measured because of increased mortality, and recessions are not as bad because of reduced mortality. Consequently, we find that U.S. business cycle fluctuations appear milder than commonly measured and may even be reversed for the majority of “recessions” after accounting for the cyclicality of health. We find that adjusting for mortality reduces the measured U.S. business cycle volatility during the past 50 years by about 37% in the United States and 46% internationally. We discuss future research directions for more fully incorporating the cyclicality of unobserved health capital into standard output measurement.
The NBER link is here, does anyone know of an ungated copy? Of course other forms of depreciation could be included as well (environmental?) and that too may smooth out business cycles, if we are willing to countenance such factors in the first place.
You will find this question discussed in a symposium at Econ Journal Watch, co-sponsored by the Mercatus Center. Contributors include Richard Epstein, David R. Henderson, Richard Posner, Daniel Houser, James K. Galbraith, Sam Peltzman, and Robert Solow, among other notables. My own contribution you will find here, I start with these points:
If I approach this question from a more general angle of cultural history, I find the diminution of superstars in particular areas not very surprising. As early as the 18th century, David Hume (1742, 135-137) and other writers in the Scottish tradition suggested that, in a given field, the presence of superstars eventually would diminish (Cowen 1998, 75-76). New creators would do tweaks at the margin, but once the fundamental contributions have been made superstars decline in their relative luster.
In the world of popular music I find that no creators in the last twenty-five years have attained the iconic status of the Beatles, the Rolling Stones, Bob Dylan, or Michael Jackson. At the same time, it is quite plausible to believe there are as many or more good songs on the radio today as back then. American artists seem to have peaked in enduring iconic value with Andy Warhol and Jasper Johns and Roy Lichtenstein, mostly dating from the 1960s. In technical economics, I see a peak with Paul Samuelson and Kenneth Arrow and some of the core developments in game theory. Since then there are fewer iconic figures being generated in this area of research, even though there are plenty of accomplished papers being published.
The claim is not that progress stops, but rather its most visible and most iconic manifestations in particular individuals seem to have peak periods followed by declines in any such manifestation.
You may perhaps have heard of the intriguing mathematician Shinichi Mochizuki who has produced an alleged proof of an important theorem that is so difficult and involves the creation of so much original mathematics and notation that no one is sure whether the proof is valid. Here is one description:
On August 31, 2012, Japanese mathematician Shinichi Mochizuki posted four papers on the Internet.
The titles were inscrutable. The volume was daunting: 512 pages in total. The claim was audacious: he said he had proved the ABC Conjecture, a famed, beguilingly simple number theory problem that had stumped mathematicians for decades.
Then Mochizuki walked away. He did not send his work to the Annals of Mathematics. Nor did he leave a message on any of the online forums frequented by mathematicians around the world. He just posted the papers, and waited.
…The problem, as many mathematicians were discovering when they flocked to Mochizuki’s website, was that the proof was impossible to read. The first paper, entitled “Inter-universal Teichmuller Theory I: Construction of Hodge Theaters,” starts out by stating that the goal is “to establish an arithmetic version of Teichmuller theory for number fields equipped with an elliptic curve…by applying the theory of semi-graphs of anabelioids, Frobenioids, the etale theta function, and log-shells.”
This is not just gibberish to the average layman. It was gibberish to the math community as well.
“Looking at it, you feel a bit like you might be reading a paper from the future, or from outer space,” wrote Ellenberg on his blog.
“It’s very, very weird,” says Columbia University professor Johan de Jong, who works in a related field of mathematics.
Mochizuki had created so many new mathematical tools and brought together so many disparate strands of mathematics that his paper was populated with vocabulary that nobody could understand. It was totally novel, and totally mystifying.
But there may be more secrets, secrets upon secrets because Ted Nelson has recently argued that this same mathematician, Shinichi Mochizuki, is also the elusive Satoshi Nakamoto who unleashed bitcoin on the world and then disappeared. Now this is almost too delicious to be true so take it with more than a grain of salt. Mochizuki, for example, has bona fides as a mathematician but he does not appear to have a record of sophisticated software creation. But if true, this would be awesome.
Hat tip: Barry Klein
Daniel Klein of George Mason University has conducted one of the broadest studies with the Google search engine [TC: the paper is here]…On the subject of individualization, he found that the word “preferences” was barely used until about 1930, but usage has surged since. On the general subject of demoralization, he finds a long decline of usage in terms like “faith,” “wisdom,” “ought,” “evil” and “prudence,” and a sharp rise in what you might call social science terms like “subjectivity,” “normative,” “psychology” and “information.”
Klein adds the third element to our story, which he calls “governmentalization.” Words having to do with experts have shown a steady rise. So have phrases like “run the country,” “economic justice,” “nationalism,” “priorities,” “right-wing” and “left-wing.” The implication is that politics and government have become more prevalent.
So the story I’d like to tell is this: Over the past half-century, society has become more individualistic. As it has become more individualistic, it has also become less morally aware, because social and moral fabrics are inextricably linked. The atomization and demoralization of society have led to certain forms of social breakdown, which government has tried to address, sometimes successfully and often impotently.
This story, if true, should cause discomfort on right and left. Conservatives sometimes argue that if we could just reduce government to the size it was back in, say, the 1950s, then America would be vibrant and free again. But the underlying sociology and moral culture is just not there anymore. Government could be smaller when the social fabric was more tightly knit, but small government will have different and more cataclysmic effects today when it is not.
Liberals sometimes argue that our main problems come from the top: a self-dealing elite, the oligarchic bankers. But the evidence suggests that individualism and demoralization are pervasive up and down society, and may be even more pervasive at the bottom. Liberals also sometimes talk as if our problems are fundamentally economic, and can be addressed politically, through redistribution. But maybe the root of the problem is also cultural. The social and moral trends swamp the proposed redistributive remedies.
Here is more, interesting throughout.
Suppose that I could wave a magic wand (or play a few notes on a a Magic Flute) and suddenly increase all German wages by 20 percent. What do you think would happen to the value of the euro against the dollar and other currencies? It would drop a lot, yes? And Portuguese exports would become a lot more competitive everywhere, including non-German and indeed non-Euro destinations.
I guess I thought this was obvious. Apparently not.
Let’s start with the data. Portuguese exports have indeed gone up since 2009, with the weaker euro likely being one reason. Here is a recent positive report. Still, this experience shows higher exports are unlikely to prove their salvation. Last year Portuguese shipments outside Europe rose by twenty percent, but that is from a fairly small base. The country continues to have high unemployment and falling gdp, doing worse than does Ireland on the test which Krugman repeatedly applies to Irish recovery. The Portuguese forecast for this year is 2.3% gdp shrinkage and 18% unemployment, and that is with an export performance described as “surging.” “Surging” isn’t enough.
[A digression: If you are tempted to argue that “exports arising from inflation in Portugal would be so much more potent than the export boost from the status quo,” keep in mind that we are dealing here with the postulated scenario, accepted by Krugman for the sake of argument, where the euro falls, stimulating exports, as indeed has happened, but the inflation stays in Germany and does not spread to Portugal.]
To dig deeper, we might ask how strong the additional export elasticity, with respect to euro devaluation, is going to be. The leading export partners of Portugal are Spain, Germany, France and Italy, not a surprise. So a weaker euro won’t much help them on those fronts. Around 71% of their exports go to the EU and most of that will be to the eurozone. Next in line is the UK but the pound has fallen too and according to many should (will?) fall even further. The BRICS are ailing on the growth front. Team USA is not going to turn Portugal around, we just don’t buy enough cork.
The main import of Portugal from outside the eurozone seems to be petroleum, so a weaker euro hurts them on that front.
Portugal is also a victim of what is called “the gravity equation,” namely that distance hurts the prospects for trade and in a manner which is strongly non-linear. Think about the map or failing that read Saramago’s The Stone Raft — Portugal is close to other eurozone countries and to some (relatively poor) parts of Africa, otherwise it is pretty far from most places.
As an aside, it is strange for Krugman of all people to so stress the real exchange elasticity of exports. To do a bit of history of economic thought (pdf):
In particular, the seminal paper by Baldwin and Krugman (1989) shows that the existence of a sunk entry cost into the export market generates a persistent effect of real exchange rate movements on bilateral exports. The model also suggests that a larger sunk entry cost generates a more persistent effect, or equivalently a lower reaction of exports to real exchange rate movements [emphasis added]. We specifically test this theoretical prediction by making use of various measures of trade costs that can be associated to the sunk entry cost.
In other words, real exchange rate movements are not a panacea, and furthermore this is all the more true for countries which are in a disadvantageous position due to…the gravity equation. The higher export elasticity for Portugal may well be through the dreaded internal devaluation, because that is at least relative to their close and most likely trade partners.
Krugman’s own words on the topic were “huge swings in the exchange rate have had only muted effects on anything real,” to cite one claim out of numerous similar passages.
[Now that sentence is from 1989 and perhaps now you will leap up and accuse me of not allowing Krugman to change his mind, or of thinking he wanted to raise marginal tax rates in 1959, or of seeing 1978 as a liquidity trap. Please. This is a fairly general result, but, if the relevant elasticities have indeed gone up significantly since 1989, and indeed that is possible, that is worth discussing. But rather than making a case for such a change, Krugman’s response of “Portuguese exports would become a lot more competitive everywhere, including non-German and indeed non-Euro destinations. I guess I thought this was obvious. Apparently not.” is little more than a self-parody of his own style of argumentation.]
We can all agree that inflation centered in Germany has some positive spillover effects to Portugal. But let’s go back to the initial question, a positive rather than normative one. Can a German prime minister credibly promise that significantly higher inflation would set things straight in the eurozone periphery or for that matter fix Portugal? I don’t think so, though it may have worked in 2009, as indeed I argued at that time.
Krugman amended his initial post to state the following:
Again, as Ryan [Avent] says, the crucial difference between German/ Portuguese economic relations and, say, US/
El Salvador(whoops: some central American countries have dollarized. But that was their choice, not part of a grand project like the euro) relations is that Germany and Portugal share a currency. This creates obligations for Germany, whether it likes them or not.
That’s a good example of “distraction by introducing or stressing a moral issue.” (You can track some of Ryan’s related tweets here.) One can indeed argue the extent of Germany’s moral obligation to its fellow parties in a “we’re all in this together but no bailouts and price stability” treaty. But the issue on the table was how much more inflation would help Portugal and other nations of the periphery; surely an understanding of that question should come first.
If someone argues “it may not help as much as you think at this point,” and the response is “Germany must be morally (and financially) committed to the grand project,” that is an object lesson in precisely why Germany and some other nations are insisting on so many limits and rules within the eurozone and EU. Krugman is fond of saying he wants to change the world and not just engage in polite dinner table conversation, but may I suggest his framing is not likely to prove an advance marketing beachhead for the ideas of fiscal union and banking union in Berlin much less Helsinki or for that matter Paris?
As for myself, when the Krugman/Avent case for the German moral obligation so frequently and so quickly jumps to what Daniel Klein has called “The People’s Romance (pdf),” and so infrequently gets into the nitty-gritty of the positive economic argument, that makes me nervous too.
There is the usual snark in Krugman’s post, but if you read it through you will notice it does not cite a single fact or estimate.
Employers are increasingly recognizing they may be able to avoid certain penalties under the federal health law by offering very limited plans that can lack key benefits such as hospital coverage.
Benefits advisers and insurance brokers—bucking a commonly held expectation that the law would broadly enrich benefits—are pitching these low-benefit plans around the country. They cover minimal requirements such as preventive services, but often little more. Some of the plans wouldn’t cover surgery, X-rays or prenatal care at all. Others will be paired with limited packages to cover additional services, for instance, $100 a day for a hospital.
Federal officials say this type of plan, in concept, would appear to qualify as acceptable minimum coverage under the law, and let most employers avoid an across-the-workforce $2,000-per-worker penalty for firms that offer nothing. Employers could still face other penalties they anticipate would be far less costly.
It is unclear how many employers will adopt the strategy, but a handful of companies have signed on and an industry is sprouting around the tactic. More than a dozen brokers and benefit-administrators in 10 states said they were discussing the strategy with their clients.
There is more detail at the link, including a discussion of some of the legal uncertainties. Veronique de Rugy adds comment here.