Month: July 2013

My favorite things Scotland

And so the journey continues.

Let’s put the Scottish Enlightenment aside and turn to some more recent creations.  Here goes:

1. Novel: Alasdair Gray, Lanark.  Iain Banks and Ken MacLeod deserve notice as well.  I don’t relate to Trainspotting.  I understand the case for Robert Louis Stevenson and would wish to jump on board, but usually I lose interest before the end of his books.

2. Painter: Henry Raeburn was part of the Scottish Enlightenment I think.  So where to turn?  Ken Currie?  Scotland is not strong in this category.

3. Classical music: Umm…William Primrose was a strong violist.

4. Architect: Charles Rennie MacIntosh, especially the library.

5. Inventor: James Watt, but there is lots and lots of competition here.

6. Actor: How about Sean Connery?  Don’t forget Zardoz.

7. Movie: Gregory’s Girl.

8. Movie, set in Scotland: The Queen.

9. Popular music: David Byrne was born in Scotland.  I know the Cocteau Twins, Boards of Canada, Franz Ferdinand, and others, they are OK but I do not love them.  Dire Straits and Annie Lennox deserve mention, but overall I suspect many of you rate this group higher than I do.  Jesus and Mary Chain?  While we’re at it, there is Ewan McLennan and Bert Jansch, both of whom I enjoy.

The bottom line: These are people of intellect (remember the Enlightenment!) and also people of action.  For explorers and inventors the record is extremely strong.  Yet for music and some of the arts the contributions are rather faint.

Is there a Flynn effect for dementia?

It seems so:

A new study has found that dementia rates among people 65 and older in England and Wales have plummeted by 25 percent over the past two decades, to 6.2 percent from 8.3 percent, the strongest evidence yet of a trend some experts had hoped would materialize.

Another recent study, conducted in Denmark, found that people in their 90s who were given a standard test of mental ability in 2010 scored substantially better than people who reached their 90s a decade earlier. Nearly one-quarter of those assessed in 2010 scored at the highest level, a rate twice that of those tested in 1998. The percentage severely impaired fell to 17 percent from 22 percent.

From Gina Kolata, there is more here.

Assorted links

1. Can matching models explain the unemployment dynamics of the Great Depression?

2. How much do the new gdp figures rely on measures of Chinese investment, and why are the Chinese getting so heavily into Bitcoin?

3. Are bee colonies really collapsing?: an economic perspective.

4. Can Big Data change our understanding of the American novel?

5. Is Urumqi central Asia’s most important city?

6. A trusted reader sent me this video link and I decided to post it without sampling it first.

Notes from Iceland

The restaurant scene is much improved, compared to nineteen years ago, though don’t expect much in the way of vegetables.  Reykjavik seems to have an excessive capital stock relative to current income.  Natasha finds it hard to get decaffeinated coffee.  The tap water is superb and, on weekends, only two people work in what is the world’s second largest geothermal plant.  Icelandic horses and ponies look quite genetically distinct.  Puffins fly faster than you might expect.  It is back to being an expensive country.

Overall I see a society on the verge of a massive and permanent transformation.  The Icelanders face two questions rather immediately.  First, will they allow mass tourism, with its cultural and environmental implications?  (Most likely they will, if only because they don’t know how to stop it.)  Second, will they allow continuing or perhaps even accelerating immigration?, noting that the current population (not all native Icelanders) is only about 320,000.  A relatively small amount of immigration, or tourism for that matter, would make for a big cultural change, most likely with no way of turning back, for better or worse.  High-skilled immigration alone could do it.  It is already the case that the biggest association of Icelandic horses worldwide is in Germany, namely the Islandpferde-Reiter- und Züchterverband.


Wikipedia claims that Icelandic has no unique word for “pony.”

*Securities Against Misrule*, the new Jon Elster book

The subtitle is Juries, Assemblies, Elections and the book focuses on the very Nordic concern of how to make better political decisions within a democratic framework.  Elster thinks that social choice theory presents insoluble dilemmas with ranking outcomes, so we should focus on improving how political decisions are made.  It’s all about “preventing the prevention of intelligence.”  He promotes secret voting, public deliberations, incorporation of diverse opinions, waiting until passions have subsided, and various methods of running better jury trials.  The influence of Bentham here is paramount, albeit a lesser-known Bentham, that of his own tract Securities Against Misrule, among other writings.

I found this one of the most stimulating social science books so far this year, and it has Elster’s impressive intelligence, breadth and clarity.  But I see many points quite differently, so I will pass along a few issues that come to mind:

1. I worry about the standard philosopher’s comeback to Elster’s proceduralism.  If we cannot very well judge or compare outcomes, how ultimately are we supposed to evaluate procedural changes?  Furthermore the theory of the second best suggests that procedures which “sound good” may not in fact lead to better outcomes.  We get stuck rather quickly.

2. I don’t myself find aggregation problems to be insuperable.  We all know that Norway is a great place, and cardinal information will get us over the usual Arrow problems , a’la Sen (1984).  A lot of the rest is what I call details.  Without intending any bias against explicit norms of rational discourse, the more fundamental question is how a country can enjoy the luxury position of debating such matters peacefully in the first place.  Ask Egypt.

3. If I think about the historical decisions which I consider wise and important, they very often are based on a certain amount of Machiavellianism, rather than on the standards for an ideal speech community.  The ratification of the U.S. Constitution is one obvious example.  Might Elster’s proceduralism work best at the micro level, when embedded in a broader realpolitik framework that already gives some Machiavellian control to “the good guys”?

4. Elster never considers markets or betting (apologies to Carow Hall) as mechanisms for preference revelation, though at one point he evinces skepticism about vote trading.

5. The idea of giving more influence to smarter people also is not on the table (see p.85 for a brief discussion, and also the bottom of p.5).

6. There is occasional talk of the private sector, such as the stipulation that Norwegian corporate boards appoint 40% women.  Yet there is no systematic discussion of how private companies or private non-profits run meetings, conduct elections, obtain board consensus, or otherwise reach decisions.  This point is not unrelated to #5.  I’m not suggesting government can be “run like a business” but it is odd to write as if private sector experience with decision-making is irrelevant.  It is those procedures which have to pass some kind of market test.  So more Hayek, less Habermas.

7. At the end of the day, the losers in these dialogues will suffer under coercion and the winners will exercise power.  This limits what kind of upfront discourse is possible.  I wished for this topic to receive more attention.

Elster has been writing excellent books for over thirty years, and you can buy this book here.

Is Japanese stagnation demand-side or supply-side?

Here is an excellent post by Noah Smith on that topic.

Here is one bit:

It seems to me that the standard New Keynesian sticky-price story just cannot explain Japan. The “short run” for Japan is over and done. We are not looking at a “short-run” fluctuation caused by sticky prices.

This has implications for policy. It means that we can’t expect the “first arrow” of Abenomics – quantitative easing – to boost the real economy through the kind of channel described by a New Keynesian or AD-AS model. It might do so through some other channel, but how exactly that will work is not clear.

Here is another bit:

But I don’t think Japan is living in an RBC world either. Because in an RBC world, keeping interest rates at zero for decades, and printing a bunch of money (as the Bank of Japan did in the mid-2000s), should cause inflation (without helping growth). Instead, we see persistent deflation. So an RBC model of the common type can’t be describing Japan’s world either.

Here is his conclusion, with which I very much agree:

I’m not sure I know any model that describes Japan; maybe we don’t have one. But my guess is that it’s a world in which “Aggregate Demand” and “Aggregate Supply” are not as distinct entities as they are in Econ 102. In an AD-AS framework, either the AD curve or one of the AS curves shifts on its own. But in Japan, it may be that what look like supply shocks (falling productivity) and what look like demand shocks (deflation) may actually be due to the same cause.

And whatever world Japan is living in may have multiple equilibria. It may be that Japan is trapped in a “bad equilibrium”, and it will require a “big push” to kick it back to the “good equilibrium”. In fact, that seems to me to be the implicit premise of Abenomics.

In any case, we shouldn’t be thinking about Japan solely in terms of our standard textbook models. The real world appears to be much weirder than those toy environments.

Assorted links

1. Sinkholes, including one bovine example.

2. Julio Rotemberg, with a new theory of Fed policy (pdf, via Arnold Kling).

3. Can this big orange ball save you?

4. Tokyo does live snail facial therapy.

5. What is happening to serendipity and browsing in the on-line world?, by Virginia Postrel: “…consumers are more than twice as likely to buy books on impulse in a bookstore than online, according to Bowker Market Research.”

6. How stores track shoppers.

Income Inequality and the Servant Boom

Inequality is likely to drive increased jobs in the service sector as appears to be the case in London:

The number of domestic servants is booming across central London: wherever the multiple between the wages of the rich and the poor grows, so does the number of servants. Much of the time, the towering Georgian and Victorian terraced houses of Belgravia now have only servants living in them – their masters and mistresses are drifting around the world, from yacht to schloss to Park Avenue apartment, in search of pleasure or tax avoidance. Drive round the area at night, and it’s often only the lights in the attics and the basements – the servants’ quarters – that are on.

But it’s not just in the gilt-edged parts of Britain that the service industry is flourishing. According to the Work Foundation, there are now more than two million part-time or full-time domestic workers across the country. All told, 10 per cent of households now employ some sort of domestic help.

The Economist concurs:

According to Britain’s Office for National Statistics (ONS), household expenditure on domestic service hit a low point in 1978, since when it has quadrupled in real terms. It estimates there are as many domestic workers in London now as in Victorian times.

The idea of working as a personal servant strikes many people as distasteful. Indeed, there is much to be said for working for a faceless corporation or for selling directly to the impersonal market. Many jobs in the personal service sector, however, do offer significant autonomy and room for creativity–for example, personal chefs, gardeners, high-end nannies, pilots, publicists and tutors. Service workers today are also less likely to be tied to a single employer, either a ready market is available to switch employers or they are already selling to a range of customers. Compared to jobs in manufacturing and in impersonal service, personal service jobs are also likely to be more immune to competition from the robots.

Hat tip: Tim Harford.

Why isn’t health care employment slowing?

We’ve all heard a lot about the slowing of health care cost inflation.  Yet, coming from Dan Diamond of The Advisory Board, here are some very interesting points of relevance to the topic:

“A lot of people have noted that health care spending has slowed,” Amitabh Chandra, an economist and the director of health policy research at the Harvard Kennedy School, told me last week.

“Many of us would like to think that this is a more permanent slowdown,” he added.

“[But] we see absolutely no slowdown in employment growth in health care. And if that is not slowing, then it’s very difficult to believe that there will be a sustained slowdown in health care spending.”

Health care gained more than 320,000 jobs in 2012—the sector’s strongest year in five years.

…”One hypothesis is that only lower-paying jobs in health are growing,” the Altarum Institute’s Ani Turner told me via email. But “we don’t think that’s true.” Altarum researchers have reviewed BLS data and found “stable growth” for the most highly paid health care workers—i.e., doctors and nurses—if somewhat lower growth for health care support roles.

And the University of Texas’s Richardson took a look at two other potential culprits: whether the wages paid to health care workers had fallen in recent years, or if their hours worked had declined. But neither scenario had come to pass; in fact, Richardson found that hourly wages had only climbed, while weekly hours worked have remained essentially flat.

The full article is here, and the entire discussion is of interest.  You will note for instance that capital spending does seem to be down.

File under “The Puzzle Deepens.”

Private sector macro job opportunities

A long-time reader writes to me:

Maybe this request is too specific, but I think it has relevance for some of your readers: What are the private sector options for PhD macroeconomists? I think the options for micro people are fairly well known (market design, litigation consulting, etc.). But the options for macroeconomists are less so, in part because (as I understand it) private sector macro consulting firms use models that are far from the DSGE and even VAR models that PhD programs teach. Are these firms, as well as economist offices in banks, interested in new macro PhDs? Are other kinds of firms? What sort of coursework and dissertation choices should macro students with private sector goals select? What is the pay like? Will the application process be similar to the academic market, relying heavily on the job market paper, or will it be a different kind of interview?

I ask because it is difficult for PhD students to solicit this kind of advice from faculty due to fear that faculty don’t want to work with students who aren’t on an academic track (and, for this reason, I request anonymity). Those of us who are undecided have a difficult choice to make: information about the academic job market is abundant, but information about the private sector job market is harder to find without personal contacts.

I am far from expert on this topic, so I will turn this over to MR readers in the comments section…

Patent Thugs

From the NYTimes:

In the last five years, IPNav has sued 1,638 companies, according to a recent report by RPX, a patent risk management provider, more than any other entity in the patent field. “To get companies to pay attention, in some percent of the market, you need to whack them over the head,” Mr. Spangenberg said. “In our system, you can’t duel, you can’t offer to fight in the street, which would be fine with me.”

…Mr. Spangenberg is likely to open the conversation on a diplomatic note, but if you put up enough resistance, or try to shrug him off, he can also, as he put it, “go thug.”

He demonstrated what that sounds like in a brief bit of role-play recently, sitting in the apartment he is renting for the summer in Paris near the Arc de Triomphe. His voice dropped, the curse words flowed, and he spoke with carefully modulated menace.

“Once you go thug, though, you can’t unthug,” he explained, returning to his warm and normal tone. “Actually, you can unthug, but if you do that, you can’t rethug. Then you just seem crazy.”

Hat tip: Donald Marron (twitter).

China markets in everything

Entrepreneurial Taobao vendors are now offering a service that will send a stranger to visit your parents in your place for a few hours, which may fulfill the requirements of the government’s new initiative the “Law on Protection of the Rights and Interests of the Elderly”. The law, which came into effect on July 1, obliges China’s sons and daughters to visit their parents but does not specify what number of visits would ensure a healthy parent-child relationship under the law.

Shanghai Daily reports that “The service targets people who are too busy or have a bad relationship with their parents.” A Taobao vendor described “We offer services such as chatting, celebrating birthdays and even performances,” and that they have “a professional team but you have to tell us topics they like to start a good chat.”

The amount one must pay for this façade of familial love and companionship is surprisingly affordable, with most offers being much cheaper than a cross country train ticket. One vendor charges 100 yuan per hour while other sources report an even cheaper rate at “Ten minutes for 8 yuan, one hour for 20 yuan.” The rates differ by region, the service is currently only available in Beijing, Hangzhou, Shenzhen and three other cities.

Here is more, via Karina Zannat.

McDonald’s pulls out of Iceland

McDonald’s is to close its business in Iceland because the country’s financial crisis has made it too expensive to operate its franchise.

The fast food giant said its three outlets in the country would shut – and that it had no plans to return.

Besides the economy, McDonald’s blamed the “unique operational complexity” of doing business in an isolated nation with a population of just 300,000.

Iceland’s first McDonald’s restaurant opened in 1993.

Here is more.  Most of all, it is more expensive to import inputs (oddly, the story does not mention capital controls).  The restaurants will be reconfigured and in their new identity they will source Icelandic products much more.

Here is a brief update on the economy of Iceland, including a discussion of Iceland’s significant fiscal consolidation.  By the way, the country has seen two years running on negative growth in health spending.

Here is an article on how much immigrants are starting to contribute to the economy of Iceland.  I bought a mineral water from a “Cafe Haiti” in Reykjavik and I believe it was not there the last time I visited, nineteen years ago.

I enjoyed the new Samsung ad for Iceland.