Month: November 2013

But is he on time for low status people?

Being 50 minutes late for his first meeting with Pope Francis was nothing unusual for Russian President Vladimir Putin. That’s just the way he is — a character trait that provides some insight into his attitude toward power.

When Putin arrived on time to an audience with Pope John Paul II in 2003, the punctuality was considered a newsworthy aberration: “The President Was Not Even a Second Late,” read the headline in the newspaper Izvestia. He had been 15 minutes late for a similar audience in 2000.

The waits other leaders have had to endure in order to see Putin range from 14 minutes for the Queen of England to three hours for Yulia Tymoshenko, the former Ukrainian prime minister. Few people are as important in terms of protocol as the queen or the pope, and there is no country Putin likes to humiliate as much as Ukraine.

The typical delay seems to be about 30 minutes. Half an hour is enough in some cultures to make people mad. Koreans saw Putin’s 30-minute lateness for a meeting with their President Park Geun Hye as a sign of disrespect.

Everybody endures the wait, though.

There is more here, hat tip to Elizabeth Dickinson.

Are capital controls applied the way they are supposed to be?

It seems the answer is no, they are applied acyclically rather than pro-cyclically to calm down overheating economies.  Here is a new paper by Andrés FernándezAlessandro Rebucci, and Martín Uribe, “Are Capital Controls Prudential? An Empirical Investigation”:

A growing recent theoretical literature advocates the use of prudential capital control policy, that is, the tightening of restrictions on cross-border capital flows during booms and the relaxation thereof during recessions. We examine the behavior of capital controls in a large number of countries over the period 1995-2011. We find that capital controls are remarkably acyclical. Boom-bust episodes in output, the current account, or the real exchange rate are associated with virtually no movements in capital controls. These results are robust to decomposing boom-bust episodes along a number of dimensions, including the level of development, the level of external indebtedness, or the exchange-rate regime. We also document a near complete acyclicality of capital controls during the Great Contraction of 2007-2009.

This relates to what is perhaps the most frequent mistake in economic analysis.  Markets “as we find them” are compared to government policy “as it ought to be,” rather than “government policy as we find it.”  If you had nothing else to do, you could blog that error hundreds of times a day.

You also might wish to sample this 2011 IMF survey on capital controls, which relates the following: “A review of the literature shows that capital  controls (as distinct from prudential CFMs) have little effect on overall flows, although it appears that controls can change the composition of flows. In most cases, controls also have little effect on currency appreciation…A broader review of the experiences of 13 emerging market economies in the 2000s also does not provide unambiguous support for the effectiveness of capital controls and prudential measures.”

Wishing don’t make it so.

The Great Reset, education edition (hi future)

Arlington-based Strayer Education Inc., hoping to curb declining enrollment, will cut tuition for new undergraduate students by as much as 40 percent.

Strayer will give all new students 20 percent off tuition at enrollment, and is offering a program called Tuition Awards, which will cover the cost of one class for every three a student successfully completes.

…Total enrollment at Strayer University for the fall term fell 17 percent, while new enrollments were down 23 percent.

Strayer (NASDAQ: STRA) is also reducing its workforce by 20 percent and closing 20 physical campuses within the next six months.

It is no surprise for many of these changes to start at the lower end of the market, just as the financial crisis started with subprime.  Here is more, and for the pointer I thank Carrie Conko.

Assorted links

Our DNA, Our Selves

At the same time that the NSA is secretly and illegally obtaining information about Americans the FDA is making it illegal for Americans to obtain information about themselves.

In a warning letter the FDA has told Anne Wojcicki, The Most Daring CEO In America, that she “must immediately discontinue” selling 23andMe’s Personal Genome Service, more affectionately known as the spit kit.

As I wrote when this issue first surfaced in 2010:

The ability of genetic tests to predict diseases is currently limited; if the FDA were simply to require firms to acknowledge this point, say with a clear statement of probabilities, that would be one thing (although this task is better met by the FTC under advertising regulation). But the FDA is brazenly overreaching in trying to regulate genetic tests as medical devices. First, there is no question that these tests are safe–safer than brushing your teeth!–and also effective in identifying genetic markers. Thus, DNA-Test-Tube-300x300there is no medical reason whatsoever for regulation.

Moreover, genetic tests provide information, personal information about our bodies and our selves. The FDA has no standing to interfere with the provision of such information.

Consider, I swab the inside of my cheek and send the sample to a firm. The idea that the FDA can rule on what the firm can and cannot tell me about my own genes is absurd–it’s no different than the FDA trying to regulate what my doctor can tell me after a physical examination or what my optometrist can tell me after an eye examination (Please read the first line.  “G T A C C A…”).

The idea that the FDA can regulate and control what individuals may learn about their own bodies is deeply offensive and, in my view, plainly unconstitutional.

Let me be clear, I am not offended by all regulation of genetic tests. Indeed, genetic tests are already regulated. To be precise, the labs that perform genetic tests are regulated by the Clinical Laboratory Improvement Amendments (CLIA) as overseen by the CMS (here is an excellent primer). The CLIA requires all labs, including the labs used by 23andMe, to be inspected for quality control, record keeping and the qualifications of their personnel. The goal is to ensure that the tests are accurate, reliable, timely, confidential and not risky to patients. I am not offended when the goal of regulation is to help consumers buy the product that they have contracted to buy.

What the FDA wants to do is categorically different. The FDA wants to regulate genetic tests as a high-risk medical device that cannot be sold until and unless the FDA permits it be sold.

Moreover, the FDA wants to judge not the analytic validity of the tests, whether the tests accurately read the genetic code as the firms promise (already regulated under the CLIA) but the clinical validity, whether particular identified alleles are causal for conditions or disease. The latter requirement is the death-knell for the products because of the expense and time it takes to prove specific genes are causal for diseases. Moreover, it means that firms like 23andMe will not be able to tell consumers about their own DNA but instead will only be allowed to offer a peek at the sections of code that the FDA has deemed it ok for consumers to see.

Alternatively, firms may be allowed to sequence a consumer’s genetic code and even report it to them but they will not be allowed to tell consumers what the letters mean. Here is why I think the FDA’s actions are unconstitutional. Reading an individual’s code is safe and effective. Interpreting the code and communicating opinions about it may or may not be safe–just like all communication–but it falls squarely under the First Amendment.

The FDA also has the relationship between testing and clinical validity ass-backward. The FDA wants to say no to testing until clinical validity is established but we are never going to discover clinical validity until we have mass testing. 23andMe is attempting to leverage individuals thirst for knowledge about themselves into a big data project that will discover entirely new connections between genotype and phenotype. But personalized medicine, just like personalized movie recommendations, only works with databases of millions. In the 20th century we took on many of our common diseases but it is now time to take on the uncommon diseases. There are some 7,000 known diseases and only about 500 have a treatment. Individual and disease heterogeneity is so large that even the diseases that we can treat are often not treated well. New approaches are necessary for progress. The collection of large amounts of DNA data is not the last step of personalized medicine but the first and by pushing back against the first steps the FDA is delaying the promise and progress of personalized medicine.

Full Disclosure: The FDA’s threat to regulate genetic tests in 2010 made me spitting mad so I put that spit to good use and became a 23andMe customer. Well worth it, if only to point out to my wife that contrary to all evidence I am in fact only 2.2% Neanderthal.

The mover’s advantage: The superior performance of migrant scientists

That is a new paper by Chiara Franzoni, Giuseppe Scellato and Paula Stephan, and the abstract is this:

Migrant scientists outperform domestic scientists. The result persists after instrumenting migration for reasons of work or study with migration in childhood to minimize the effect of selection. The results are consistent with theories of knowledge recombination and specialty matching.

The university-gated version is here.  There are more new immigration papers here, via Kevin Lewis.

By the way, over sixty percent of the scientists and engineers of Silicon Valley were born outside of the United States.  By the way, here is a new Swiss paper (pdf) on attitudes toward immigrant foreigners.

The new Franz Oppenheimer?

Here is the fascinating job market paper by Raul Sanchez de la Sierra of Columbia University, entitled “On the Origin of States: Stationary Bandits and Taxation in Eastern Congo.”  The abstract is this:

The state is among the greatest developments in human history and a precursor of economic growth. Why do states arise, and when do they fail to arise? A dominant view across disciplines is that states arise when violent actors impose a “monopoly of violence” in order to extract taxes. One key fact underlies all existing studies: no census exists prior to the state. In this paper, I provide the first econometric evidence on the determinants of state formation. As a foundation for this study, I conducted fieldwork in stateless areas of Eastern Congo, managing a team that collected village-level panel data on current armed groups. I develop a model that introduces optimal taxation theory to the decision of armed groups to form states, and argue that the returns to such decision hinge on their ability to tax the local population. A sharp, exogenous rise in the price of a bulky commodity used in the video-game industry, coltan, leads armed groups to impose a “monopoly of violence” in coltan villages. A later increase in the price of gold, easier to conceal and hence more difficult to tax, does not. Results based on two alternative identification strategies are also consistent with the model. The findings support the hypothesis that the expected revenue from taxation, in particular tax base elasticity, is a determinant of state formation.

Hire him!

Assorted links

1. The Three (Four?) Christs experiment.

2.  The price of oil didn’t much react to the Iran dealBy the way: “…this right is clearly stated in the text of the agreement that Iran can continue its enrichment, and I announce to our people that our enrichment activities will continue as before,” Rouhani said in a statement broadcast live on television in Iran on Sunday morning.”

3. Magnus Carlsen and the Flynn Effect.

4. Ed Luce on the promise and limits of on-line education.  MIT seems to be making on-line education work.  And there is declining tuition revenue at 4 out of 10 U.S. schools.

5. Has the future already arrived in Silicon Valley?

6. Aghion on Krugman and France (in French).

7. Russ Roberts is doing an essay contest for Mokyr vs. Cowen and Gordon on stagnation and related ideas.

Beware the top search results (the new Ricardian rents?)

Anyone in the US doing their holiday shopping from the product showcases that appear at the top of Google’s search results is almost certain to pay substantially more than if they delved deeper in the search engine.

Five out of every six items in the panels shown on a Google search made in America are more expensive than the same items from other merchants hidden deeper in the index, with an average premium of 34 per cent, according to a Financial Times analysis.

That is from Richard Waters at the FT.  Do note, of course, that these higher listed products may also be of higher quality or offer better service in some way.

Automation, inequality and geopolitics

Joss Delage wrote me with a question, here is part of it:

Here’s what I’m curious about: assuming things turn out as described in your book, what do you think are the geopolitical ramifications?  More specifically, do you envision some countries specializing to attract the top earners, and if so which and how?

I don’t cover geopolitical questions in Average is Over, but here are a few observations:

1. I see elites, working in a coalition with elderly voters, as able to control the political agenda enough to prevent most developed economies from flipping into purely destructive economic policies.  So I expect the leading wealthy nations to maintain relatively strong positions in the world.  (The book by the way does explicitly predict that U.S. government will get bigger and that social welfare spending will rise, contrary to what some reviewers have suggested.)  This will be hardest, however, for the relatively pure democracies, such as the Westminster systems.

2. Some small nations, most notably Monaco and Luxembourg and Singapore, have the option of “specializing” in the higher earners and keeping in only a minimum of stagnant wage earners.  A mix of immigration policies and land prices will enforce this choice.  Commuting will rise in importance, where possible.  But such outcomes will not describe a very large share of the world.

3. One class of vulnerable nations will be current exporters who rely on low wages to be competitive.  Automation in the wealthy nations will disrupt their business models.  The current Indian model of “doing most things internally” — which is by no means ideal — will be relied on increasingly.  Export-led surpluses will not be available to drive growth, as the wealthier nations become the export leaders by increasingly wide margins.  Given the rise of smart software and robots too, labor costs will not hold them back.

4. African nations and other poor nations, such as those in southeast Asia, also will not have the option of “last generation” export-led growth, pockets of resource wealth aside.  Many of these nations will specialize in lower middle class earners.  Free-riding upon global technologies will be important, as with cell phones today.  Many more technologies will spread in this fashion, with the aid of price discrimination.  We might see billionaires adopting particular regions or groups and transferring technologies to them at relatively low cost.  “Wealth without wealth generation” will describe many locales.

5. One key question is whether software-led growth will lower or raise the relative price of most natural resources.  There will be much more production!  One possible scenario is that manufacturing growth will rise more rapidly than natural resource production will be eased.  Countries with the higher-priced natural resources will then be geopolitical winners.  And in that case high energy prices become quite a burden on lower middle income earners, who switch out of cars and into bicycles, mass transit, and the like.  Yet it remains possible that smart software will do more for energy production, or for copper production, than it will for manufacturing production.

6. In talks (but not in the book) I have suggested that food production is the best candidate for “what will be most difficult to augment” in an age of smart software.  Food production seems harder to “wall off” and it seems more embedded in local culture (for better or worse, usually for worse) than factory production.  See our MRU video on conditional convergence, which considers the work of Dani Rodrik in this regard.  It would mean that the price run-up for Midwestern farm land in the United States may not be a bubble.

Let’s say smart software, robots, and artificial intelligence really do pay off.  What other geopolitical predictions would this imply?

The culture that was Singapore (Haw Par Villa)

It has its gruesome side, as illustrated by this look at a traditional site for visits, Haw Par Villa:

Thousands used to throng the park, and it once stood shoulder-to-shoulder with attractions like Singapore Zoo and Jurong Bird Park. “Every Singaporean over the age of 35 probably has a picture of themselves at Haw Par,” said Desmond Sim, a local playwright. Those pictures would probably include the following statues, each made from plastered cement paste and wire mesh: a human head on the body of a crab, a frog in a baseball cap riding an ostrich, and a grandmother suckling at the breast of another woman.

But the highlight of this bizarre park are the Ten Courts. A tableau of severe disciplines are shown in painstaking detail, along with a placard stating the sin that warranted it. Tax dodgers are pounded by a stone mallet, spikes driven into a skeletal chest cavity like a bloodthirsty pestle in mortar. Spot the tiny tongue as it is pulled out of a screaming man, watch the demon flinging a young girl into a hill of knives. Ungratefulness results in a blunt metal rod cutting a very large, fleshly heart out of a woman. Perhaps the most gruesome depiction is an executioner pulling tiny intestines out from a man tied to a pole. The colons were visible and brown. The crime? Cheating during exams.

The park may be closing down, with few remaining attendees, though from the article it seems you still can go.  Hurry up.

You can read TripAdvisor reviews of the park here.  Here is Wikipedia on the park.  Here are Flickr images.  There are further sources here.

Are these the cultural preconditions of capitalism and good governance?  I know which of my colleagues will be most happy to read about this.

Testicle car markets in everything

Many of us testicle owner/operators have often claimed that we’d happily donate our (usually left) testicle for something, usually some kind of car. So it shouldn’t be so shocking to hear that some loon is actually doing just that. One nut for $35,000. Which he’s using to buy a Nissan 370Z.

As much as I’d like to picture the scene where this ashen-faced man stumbles into a Nissan dealership, plonks a jar with a floating, solitary testicle on the counter, and points to a red 370Z before collapsing, the reality is much more orderly.

The man, Mark Parisi, is donating his nut to a medical research organization for a sum of $35,000.

There is more here, noting that the deal may not survive this publicity.  Here is more on Mark:

There are other advantages to being a human Guinea pig: He gets free checkups, which can save him around $700.

Parisi estimates he’s saved more than $150,000 over the past two years by participating in other medical studies, including an Ebola virus study that paid $5,000 a week, the Province Journal reported.

For the pointer I thank Skeptical Scalpel and @hswapnil.

None dare call it redistribution

Rebecca M. Blank was a top candidate in 2011 to lead President Obama’s Council of Economic Advisers, but then the White House turned up something politically dangerous.

“A commitment to economic justice necessarily implies a commitment to the redistribution of economic resources, so that the poor and the dispossessed are more fully included in the economic system,” Ms. Blank, a noted poverty researcher, wrote in 1992. With advisers wary of airing those views in a nomination fight, Mr. Obama passed over Ms. Blank, then a top Commerce Department official and now the chancellor of the University of Wisconsin. Instead he chose Alan Krueger, a Princeton economist.

“Redistribution is a loaded word that conjures up all sorts of unfairness in people’s minds,” said William M. Daley, who was Mr. Obama’s chief of staff at the time. Republicans wield it “as a hammer” against Democrats, he said, adding, “It’s a word that, in the political world, you just don’t use.”

There is more here.