Month: May 2013

The Adam Smith segment of the Great Economists course is underway

You will find it here, at  We have recorded videos covering, annotating, and explaining every single chapter of Smith’s masterwork Wealth of Nations, along with some coverage of surrounding historical material.  Having to explain a book “along the way” is a very interesting way to read, and I was surprised how much Wealth of Nations rose in my eyes as a result of this project.  I would like to do Keynes and Hayek and perhaps Marx in this manner as well.

When oh when will Henry George make a comeback?

Mr. Tyler’s entire home was only 78 square feet. And while his “Midtown mansion,” as he called it, was a far cry from the lavish town homes and shimmering penthouses that have spawned a thousand lustful television shows, a video tour posted on YouTube of Mr. Tyler’s little room has been viewed nearly 1.7 million times over the past year and a half. A similar video, about a 90-square-foot apartment on the Upper West Side, has been viewed even more times.

Or how about this?:

“I think there’s a lot to be said for utilizing a small space, but I literally saw somebody advertising a 5-foot by 7-foot closet,” said Ryan Nethery, 25, a cinematographer and Kentucky native who started the blog during his own apartment search. “The post read, ‘my bedroom has two closets and I don’t need one of them. Looking to rent it out.’ ”

That ad, accompanied by a small picture that included a visible clothing rod, boasted a Union Square location and asked $1,000 per month. Other posts include a $600 crawl space in South Williamsburg and a gray, L-shaped sofa, which appeared to be in the center of somebody’s living room, for $700 per month.

Here is more.

Do peer effects have inegalitarian implications?

By now it is well known that hanging out with healthy peers predicts (causes?) good health, and unhealthy peers predict (cause?) bad health, for instance as it applies to weight and diet.  So what might that mean?

But perhaps medical care should indeed be given preferentially to those who, in receiving such care, will yield a better return on the investment? Maybe people with families, or people who are merely very popular, should get more care?

That is from Nicholas A. Christakis, who also notes:

Taking network effects seriously means that we should value socially connected people more. From a policy perspective—if not from a moral perspective—the connected should get more healthcare attention.

That is a speculation and a question, so I don’t think you should read him as necessarily endorsing that as a final conclusion.  There is more here, as pointed out by the still under-followed @jflier.

Indeed, once you take peer effects seriously, the popular become very busy people indeed, adding to their already-existing popularity-related busyness.  All sorts of things must be done to help them and to improve them, and for the same reason that people worried about Charles Barkley as a role model.  Of course on average the well-connected are successful and relatively well known or even famous, so the medical attention is not going to the poor or for instance to those unemployed whose weaker networks make it harder for them to get jobs.

I would stress the general point that utilitarian theories are less egalitarian than we often like to think.  The differential marginal utility of money point is very popular, and often true, and it does generally point in an egalitarian direction.  You hear somewhat less about many of the other implications of utilitarianism.

EU survey shows how much people dislike inflation

As reported by the excellent Carola Binder:

Personally, what are the two most important issues you are facing at the moment? 

This question was only asked in May 2012. For the EU as a whole, by far the most common response was rising prices/inflation. In fact, 45% of people in 2012 said that inflation was one of the top two most important issues they were facing. The pie graph below shows, for the EU as a whole, the responses people chose. Only 15% of people chose the financial situation of their household as a top issue. Health and social security also had a mere 15%. I was stunned that three times as many people consider inflation a top issue as consider health and social security a top issue.

Of course the survey respondents are wrong (see the link for more details, including on national distribution of answers).  I believe that a) they are confusing a tight standard of living with “inflation,” and that b) they missed the post on Scott Sumner’s blog where he mentioned nominal gdp as a way of thinking about monetary policy, gobbling up only the items on Swedish liberalism, Chinese economic growth, and Asian cinema.  The best case you can make for their response is that they understand they have privileged/protected service sector jobs, they know they will not see many more nominal wage hikes, they feel more or less protected against nominal wage cuts, they do not like the idea of renegotiating their labor contracts, and so they understand that a higher “p dot” does indeed lower their real wage more or less forever.

In any case, people really do not like “inflation,” as they understand the concept.  They are not keen to hear that “inflation” should be higher, simply on the basis of a theory held by some economist.

By the way, according to one measure cited in the comments on Binder’s post, measured EU inflation is running at about 1.2%.

On the proper interpretation of “The Great Stagnation”

Will Hutton writes:

At least Summers sees some underlying economic dynamism. For techno-pessimists such as economist Professor Tyler Cowen the future is even darker. It is not only that automation and robotisation are coming, but that there are no new worthwhile transformational technologies for them to automate. All the obvious human needs – to move, to have power, to communicate – have been solved through cars, planes, mobile phones and computers. According to Cowen, we have come to the end of the great “general purpose technologies” (technologies that transform an entire economy, such as the steam engine, electricity, the car and so on) that changed the world. There are no new transformative technologies to carry us forward, while the old activities are being robotised and automated. This is the “Great Stagnation”.

Such views make for a convenient target, but that is not close to what I wrote in The Great Stagnation.  For instance on p.83 you will find me proclaiming, after several pages of details, “For these reasons, I am optimistic about getting some future low-hanging fruit.”  Those are not Straussian passages hidden like the extra Nirvana audio track at the end of Nevermind.  The very subtitle of the book announces “How America…(Eventually) Will Feel Better Again.”

I also argue in the book that the internet is the next transformational technology, and that it is already here, though it needs some time to mature and pay off.  I devoted an entire separate book to this theme, namely The Age of the Infovore, which suggests that for autistics and other infovores massive progress already has arrived.

It is also odd that Hutton mentions robots and automation.  My next book considers those factors in great detail, but you won’t find either term or variants thereof in the index of The Great Stagnation.  Nor do I have the dual worry that both everything will be automated and there is nothing left to automate, as stated by Hutton.

The lesson perhaps is that if a book has a pessimistic-sounding title, mentions of optimism will go unheeded, even if they are in the subtitle.  Might that be an example of the fallacy of mood affiliation?

Sentences to ponder

For jazz players, there is a negative relationship between earnings and having a BFA or a MFA.

The quotation is from here (pdf), the original source is Thomas M. Smith, pdf of the underlying paper here.  There are other interesting results in this paper as well.  Do note that if you don’t end up as a jazz player the degree still correlates with higher earnings.

How to make the rate of return on higher education negative

They’re signing up as we speak for a two-year degree course in heavy metal music (believed to be the first of its kind), which begins in September in a college in Nottingham.

…The degree organisers are loftily talking up the course by using terms such as “culture” and “context”. They point out that you can study music at Oxford, Cambridge or any other university, but that this “genre” degree is unique.

“Heavy metal is an extremely technical genre of music and its study is a rising academic theme,” they say. Metal is “seriously studied in conservatoires in Helsinki”, has classical music roots, and leading axe-men such as Joe Satriani incorporate the works of Paganini in their oeuvre.

Wow, Paganini.  Get this:

“It’s a degree, so it will be academically rigorous,” said Mr Maloy [the sequence designer].

And why Nottingham?:

Not only was Earache Records, a heavy metal-focused record label, founded in the city, but additionally, the region’s Download Festival appeals to over 75,000 rock and metal fans on an annual basis.

The course fees are £5,750 a year.  Here is a bit more information.

*The Americans*

Natasha and I have finished watching the first season, and I am pleased to report it is one of the few TV series I like.  It pretends to be about “two Soviet KGB officers posing as an American married couple in the suburbs of Washington D.C. in order to spy on the United States.”  But it’s actually about a) Russian mothers having to raise their children in the United States, b) what a marriage actually consists of (spoilers in that link), and c) to what are we loyal?  It captures the 1980s uncannily well.

TV viewing for this summer will likely include the full-length version of Fanny and Alexander, the Danish political thriller Borgen, and season two of Enlightened.

Assorted links

1. Memoir of an internet troll.

2. Photo of Iceland, via GH.

3. Restrictions on doctor-owned hospitals.

4. How Laura and John Arnold wish to give away their money (recommended, and cameo by Steve Levitt).

5. “…the Colorado cannabis industry is purely cash-based…”  You also can take on-line classes about how to grow marijuana.

6. Ben Bernanke gives a whole speech discussing the great stagnation and the “grandma test.”

Karl Smith on the liquidity leak

What Tyler calls a liquidity leak, I call markets at work. The ECB provides enough stimulus to get all of the Eurozone going but it all leaks to Germany. Fine. The German market heats up. German wages and rents rise. Retired German doctors start considering the virtues of a flat in Lisbon overlooking the harbor. German consultancies hold seminars on “How to make your  Mediterranean town competitive in the new German Outsourcing Model.”

This is the way things are supposed to work. The idea that a more competitive and efficient Germany should not command higher wages and rents is bizarre; and is only called inflation because the Eurozone, in its heart-of-hearts, doesn’t actually believe its one monetary union where the richer parts are distinguished principally by the fact that they have more money.

The link is here.  The analysis of course is correct, but I think this illustrates rather than solves the problem.

First, Portugal and Germany are not directly competing in so many export markets to a high degree.  So raising German wages and prices helps Portugal only somewhat.  Furthermore, the marginal propensity of Germans to spend, or the marginal propensity of German banks to lend, is not mainly directed toward the periphery.  Therefore the gradient of “how much inflation are Germans tolerating to get some real output effects in Portugal” is a steep one, much steeper than you would find within a traditional, one-nation, single currency area with geographically mobile money.

Imagine telling Americans that they must endure a good deal of inflation to help solve some aggregate demand problems in Ecuador and El Salvador.  No one doubts there is spillover, but if the banking system in Ecuador is falling apart, many of the possible transmission effects may not easily stick, or would not if Ecuador used more bank money and less pure currency.  (Just fyi, right now inflation in Ecuador is higher than in the U.S.; here are numbers for El Salvador.  It doesn’t look like a tight belt of monetary transmission to me, and those countries do not have the same bank insolvency problems which we are seeing in the eurozone periphery).

Second, this mechanism solves (at best) only one of the core problems of the eurozone, namely incorrect relative prices between Portugal and Germany.  It helps less with the “Portuguese nominal wages are too high” problem, the “Portuguese banks are not sound” problem, and the “Portugal badly needs structural reform” problem, among other difficulties.  The inflation would be an easier sell to the German public if it really would set the rest of the eurozone right, but that is a difficult case to make.  Just try uttering this sentence vor dem Publikum: “It’s the leak that will make this work.”

Third, one effect of this policy would be that Germans buy up a lot of Portuguese assets.  “Not that there is anything wrong with that” I hear you saying and indeed that is right.  Still, solving the crisis by selling a lot of the country to the Germans is not exactly a popular policy in a lot of the periphery and we could expect political resistance from that side as well.

You can think of this all as a rather odd and stunted “price-specie flow mechanism,” where the specie itself has limited geographic mobility.  To be sure, this means the inflation would have worked much better had it been applied in earlier years, before various periphery banking systems saw so much trouble.

My initial post on the liquidity leak was here.

What I’ve been reading

1. T. J. Clark, Picasso and Truth: From Cubism to Guernica.  I guess I had to read this one, but it did deliver as I had promised.  Excellent color plates, and overall a very good book (the best?) on what makes Picasso special.

2. C.P. Snow, Variety of Men.  Have I mentioned that most older books — beyond the immediate classics — are, well…crud?  But this series of portraits, covering such diverse figures as Ernest Rutherford and Robert Frost, is both entertaining and useful.

3. Julian Barnes, Levels of Life.  A subtle and moving short tale which cannot be described without introducing spoilers.  Avoids the problems which plagues some of Barnes’s less-deep works.  Right now out in the UK only, U.S. release coming later in the year.

4. Nicholas Murray, Aldous Huxley: A Biography, and Jeffrey Meyers, D.H. Lawrence: A Biography.  These are good books to read in tandem.

5. Mark Mazzetti, The Way of the Knife: The CIA, A Secret Army, and a War at the End of the Earth.  On the origins of drone warfare and also how the role of the CIA has changed.  The contents of this book, which cover secret intelligence (in a non-sensationalized fashion) are difficult to judge, but I can say it held my interest.