Month: November 2013

Should you ever pay alcoholics in beer?

Via Eric Crampton and also John Chilton, here is the culture that is Dutch:

An unusual Dutch initiative aims to put an end to one of Amsterdam’s worst nuisances — those bawdy, loitering alcoholics — by employing them in a kind of street cleaning corps. The problem, though, is that the state-financed Rainbow Foundation behind the project pays the self-professed chronic alcoholics in beer for their labor.

“The aim is to keep them occupied, to get them doing something so they no longer cause trouble at the park,” Gerrie Holterman, who heads the Rainbow Foundation, told AFP, referring to Amsterdam’s Oosterpark, an apparent favorite haunt of the alcoholics. And at least some of the participants agree on the apparent benefits of the initiative. One man in the program named Frank told AFP, “Lots of us haven’t had any structure in our lives for years, we just don’t know what it is, and so this is good for us.”

In an interesting twist on “Nudge,” Eric comments:

I don’t know, but would be willing to bet, that most of these workers were consuming rather more than the equivalent of five cans of beer per day before they started in. The delivery is paced throughout the day so there’s no chance any of them get drunk. By delivering the beer as beer rather than as the cash equivalent encourages pacing things rather than having the workers spend it all on lower cost per unit binge at the end of the day. The FP piece turns pretty snide about the initiative, saying it’s enabling alcoholism. Looks a lot more like harm-minimisation to me.

China, and the soaring price of Bitcoin

Here is one clue as to what is going on:

To what does he [Zennon Kapron] attribute bitcoin’s popularity in China, and how could others benefit from it?

“There’s BTC China’s no-fee trading for starters. You can leave your money on the platform, your coins on the platform, and trade in and out for free,”  he said.

The entry and exit points aren’t free, with a 0.5% Tenpay (China’s PayPal equivalent) cash in/out fee, and a 1% bank transfer fee.

Capital controls in China are strict. It’s easy to bring money into the country, but getting it out (to invest or spend) is more difficult. That means there are are plenty of wealthy Chinese citizens and residents looking to move their money around the world with greater freedom.

There is more here.  And here is a map of Bitcoin flows, recommended.  In other words, more entrepreneurs in China are holding Bitcoin and accepting the volatility of its value, in order to sell the asset to those looking to get money out of China.

Those using Bitcoin may wish to diversify their portfolios, they may need to make payments abroad, or they may think the Chinese currency is currently overvalued, or some mix of the above.  Bitcoin has become increasingly popular in China, and the largest Bitcoin exchange is in China, yet the currency has hardly any retail use in the country.  Still, the number of yuan-based Bitcoin trades has risen thirty-fold in the last two months, according to Bloomberg.

Right now, you can think of the value of Bitcoin being set in the same way that the value of an export license might be set through bids.  If/when China fully liberalizes capital flows, the value of Bitcoin likely will fall.  A lot.  To the extent the shadow market value of the yuan rises, and approaches the level of the current quasi-peg, the value of Bitcoin will fall, by how much is not clear.  Or maybe getting money out through Hong Kong (or Shanghai) will become easier and again the value of Bitcoin would fall.  If Beijing shuts down BTC China, the main broker, which by the way accounts for about 1/3 of all Bitcoin transactions in the world, the value of Bitcoin very likely will fall.  A lot.  You will recall that the Chinese government shut down the virtual currency QQ in 2009; admittedly stopping Bitcoin could prove harder but still they could thwart or limit it.

If you are long Bitcoin for any appreciable amount of time, it seems you are betting that the Chinese economy will do poorly and capital controls will remain.  Then more people will be increasingly desperate to get more money out of the country.  Or you may be betting that the Chinese use of Bitcoin to launder money will increase due to the mere spread of the idea, through social contagion.  According to this source, the value of Bitcoin is up by a factor of 66 this year in China.

To the extent the price of Bitcoin incorporates expectations about the future strength of the social contagion effect in China, the price of Bitcoin may become more volatile.  Expectations about the future strength of social contagion effects are probably not so stable.

In theory these points might give you a way to hedge the value of Bitcoin.  Or hedge the value of China.  Here is an interesting post about how Bitcoin prices in yuan do not so closely mirror Bitcoin prices in dollars.  If you are a resident of China and have a BTC account there are numerous interesting possibilities, none of which I recommend for the faint-hearted.  (Justin Wolfers doesn’t have to like this, but how can he think it is not interesting?)

I do not recommend that you go either long or short in Bitcoin, unless it is a small amount of money and done “for kicks.”

By the way, Ben Bernanke, by “talking up” the price of Bitcoin, is placing an implicit tax on the Chinese Johnny-come-latelys to this market, whether he intends it or not.  He also is raising the price for circumventing Chinese capital controls and perhaps thus delaying a fall in the actual market value of the yuan.

For related ideas behind this post, I am indebted to a series of tweets by Izabella Kaminska.

Addendum: Izabella comments here.

Wassily Leontief and Larry Summers on technological unemployment

Here is a very interesting piece from 1983 (jstor), Population and Development Review, it is called “Technological Advance, Economic Growth, and the Distribution of Income,” here is one excerpt:

In populous, poor, less developed countries, technological unemployment has existed for a long time under the name of “disguised agricultural unemployment”; in Bangladesh, for instance, there are more people on the land than are needed to cultivate it on the basis of any available technology.  Industrialization is counted upon by the governments of most of these countries to relieve the situation by providing — as it did in the past — much additional employment.

If I may put this into my own terminology, Leontief is suggesting that at some margins fixed proportions mean many agricultural laborers, or would-be laborers, are ZMP or zero marginal product.

Haven’t you ever wondered how some traditional economies can have unemployment rates which are so high?  Those are “structural” problems, yes, but of what kind?

By the way, Brad DeLong cites Larry Summers on ZMP workers:

My friend and coauthor Larry Summers touched on this a year and a bit ago when he was here giving the Wildavski lecture. He was talking about the extraordinary decline in American labor force participation even among prime-aged males–that a surprisingly large chunk of our male population is now in the position where there is nothing that people can think of for them to do that is useful enough to cover the costs of making sure that they actually do it correctly, and don’t break the stuff and subtract value when they are supposed to be adding to it.

“Kiwi up on China baby talk”

That is one of today’s WSJ headlines, from Nicole Wong, here is the scoop:

“New Zealand exports milk products, which is what China needs and wants,” said Anders Faergemann, who helps manage $69.1 billion at PineBridge Investments and is buying the New Zealand dollar. Mr. Faergemann said that it is likely that a relaxation of China’s one-child policy will result in more demand for New Zealand’s products over time.

“If you can export more to a growing country the size of China, your currency is in a good spot,” he said.

The kiwi wasn’t the only asset to benefit from the policy change: In China, shares of baby-formula producers, piano makers and tutoring companies jumped following the news.

And that is what greater liberty looks like.

Best non-fiction books of 2013

There were more strong candidates this year than usual.  The order here is more or less the order I read them in, not the order of preference:

Jeremy Adelman, Worldly Philosopher: The Odyssey of Albert O. Hirschmann.

Daniel Brook, A History of Future Cities.

Lawrence Wright, Going Clear: Scientology, Hollywood, and the Prison of Belief.

I liked Neil Powell, Benjamin Britten: A Life for Music and also Paul Kildea, Benjamin Britten: A Life in the Twentieth Century.

M.E. Thomas, Confessions of a Sociopath.

Rana Mitter, China’s War With Japan 1937-1945, the US edition has the sillier title Forgotten Ally.  The return to knowing some background on this conflict is rising.

Emile Simpson, War from the Ground Up: Twenty-First Century Combat as Politics.

William Haseltine, Affordable Excellence: The Singapore Health System.

Clare Jacobson, New Museums in China.  Good text but mostly a picture book, stunning architecture, no art, full of lessons.

Mark Lawrence Schrad, Vodka Politics: Alcohol, Autocracy, and the Secret History of the Russian State.

Paul Sabin, The Bet: Paul Ehrlich, Julian Simon, and our Gamble Over Earth’s Future.

Charles Moore, Margaret Thatcher: An Authorized Biography, from Grantham to the Falklands.

From books “close at hand,” I very much liked John List and Uri Gneezy, Virginia Postrel on glamour, Lant Pritchett, The Rebirth of Education, and Tim Harford on macroeconomics.

Scott Anderson’s Lawrence in Arabia gets rave reviews, although I have not yet read my copy.  From the UK I’ve ordered the new Holland translation of Herodotus and Richard Overy’s The Bombing War and have high expectations for both.

If I had to offer my very top picks for the year, they would all be books I didn’t expect to like nearly as much as I did:

Joe Studwell, How Asia Works: Success and Failure in the World’s Most Dynamic Region.

Alan Taylor, The Internal Enemy, Slavery and War in Virginia, 1772-1832.

Mark Lewisohn, Tune In: The Beatles: All These Years, volume I.

Peter Baker, Days of Fire: Bush and Cheney in the White House.

Apologies to those I left out or forgot, I am sure there were more.

Keith Richards’s *Life*

I very much enjoyed this book, which also gave me an excuse to dig out old Rolling Stones albums and listen to them again (“Dear Doctor” is perhaps my favorite Stones song, an odd choice).  If it were a 2013 publication this memoir would make my best books of the year list.  Here is p.167:

“The only reason we got a record deal with Decca was because Dick Rowe turned down the Beatles.  EMI got them, and he could not afford to make the same mistake twice.  Decca was desperate…they thought, it’s just a fad, it’s a matter of a few haircuts and we’ll tame them anyway.  But basically we only got a record deal because they could just not afford to fuck up twice.”

Arnold Kling on “secular stagnation” theses

He makes some good additional points:

Here are some criticisms that come to mind.

1. If “the” full-employment real interest rate is negative, then why do we need quantitative easing? Why does not the excess of saving over investment not by itself drive long-term rates to zero?

2. Summers wants to claim that full employment has been achieved in recent years because of asset bubbles. However, in a world of negative real interest rates, there is no such thing as an asset bubble. Real assets have infinite value in such a world.

The full post is here.

The FDA and International Reciprocity

Bacterial meningitis causes swelling of the membranes covering the brain and spinal cord. In the United States the disease kills approximately 500 people a year, often within days of infection. Survivors can have permanent disabilities including paralysis and mental disabilities. Since March seven cases of the type B strain have been diagnosed at Princeton University, with one case just last week. A vaccine exists and is available in Europe and Australia but the FDA has not permitted the type B vaccine for use in the United States.

The Centers for Disease Control and Prevention, however, has lobbied the FDA and they have now received special and unusual permission to import the type B vaccine. Following the CDCs recommendation, Princeton University has agreed to  administer and pay for the vaccine for any student that wants it.

It’s good that the FDA has lifted the ban on the type B vaccine but why should Americans have to wait for the FDA? Americans living in Europe or Australia can be prescribed the vaccine so why not here? I believe that Americans should have the right to be prescribed any drug that has been approved in Europe, Australia, Canada, Japan or other developed nation.

Indeed, as Dan Klein and I wrote at, international reciprocity of drug approvals is simple common sense:

If the United States and, say, Great Britain had drug-approval reciprocity, then drugs approved in Britain would gain immediate approval in the United States, and drugs approved in the United States would gain immediate approval in Great Britain. Some countries such as Australia and New Zealand already take into account U.S. approvals when making their own approval decisions. The U.S. government should establish reciprocity with countries that have a proven record of approving safe drugs—including most west European countries, Canada, Japan, and Australia. Such an arrangement would reduce delay and eliminate duplication and wasted resources. By relieving itself of having to review drugs already approved in partner countries, the FDA could review and investigate NDAs more quickly and thoroughly.

As has now become clear, international reciprocity is not just about choice it can also save lives.

Will hospitals buy ACA insurance for their uncovered patients?

I had not thought of this angle before:

US hospitals are exploring ways to buy “Obamacare” insurance plans for their sickest and poorest patients as they strain under the weight of tens of billions of dollars in uncompensated costs from the uninsured.

But the move is opposed by the Obama administration and insurers, who fear it could add to the turmoil surrounding the new healthcare marketplace.

…Both the White House and insurers are concerned that if hospitals started paying for insurance for certain chronically ill patients, it will skew the insurance risk pool for the new healthcare exchanges, created under the Affordable Care Act. The exchanges need to attract at least 2.7m healthy and young people, out of 7m that were estimated to join the exchanges by March 2014, in order to keep monthly premiums low.

Ms Hatton said the prospect of buying health insurance for patients has become especially important in Republican-controlled states that have decided not to expand the federal insurance programme for the poor, known as Medicaid.

From the FT, here is more.

England fact of the day

From Sarah O’Connor and Chris Giles, this one is a bruiser:

The earnings of recent English graduates have deteriorated so rapidly since the financial crisis that the latest class is earning 12 per cent less than their pre-crash counterparts at the same stage in their careers. They also owe about 60 per cent more in student debt.

As Britain starts to emerge from the downturn, a Financial Times analysis of student loan data exposes the damage done to a generation of graduates, for whom a degree has all but ceased to be a golden ticket to a decent job. Tuition fees in England almost tripled last year to a maximum £9,000 a year.

…Each cohort of graduates since the financial crisis is earning less than the one before. New graduates who earned £15,000 or more in 2011-12 – enough to start repaying their loans – were paid on average 12 per cent less in real terms than graduates at the same stage of their careers in 2007-08.

This real terms fall is three times as deep as the decline in average pay for all full-time workers over the same period.

From the FT there is more here.

Wise Crowds Tell No Lies

One of the benefits of tapping the wisdom of the crowds is that the market doesn’t lie*.  Not even white lies, as Lars Christensen found to his chagrin when he recently gave a talk to investment advisors in the Danske Bank group:

As I was about to start my presentation somebody said “The audience have been kind of quiet today”. I thought that was a challenge so I immediately jumped on top of a table. That woke up the crowd.

I ask the audience to guess my weight. They all wrote their guesses on a piece of paper. All the guesses was collected and an average guess – the “consensus forecast” – was calculated, while I continued my presentation.

I started my presentation and I naturally started telling why all of my forecasts would be useless – or at least that they should not expect that I would be able to beat the market. I of course wanted to demonstrate exactly that with my little stunt. It was a matter of demonstrating the wisdom of the crowds – or a simple party-version of the Efficient Market Hypothesis.

I am certainly not weighing myself on a daily basis so I was“guestimating” my own weight then I told the audience that my weight is 81 kilograms (fully dressed). I usually think of my own weight as being just below 80 kg, but I was trying to correct it for the fact I was fully dressed – and I added a bit extra because my wife has been teasing me that I gained weight recently.

As always I was completely confident that the “survey” result would come in close to the “right” number. So I was bit surprised when the  ”consensus forecast” for my weight came in at 84.6 kg

It was close enough for me to claim that the “market” – or the crowd – was good at “forecasting”, but I must say that I thought the “verdict” was wrong – nearly 85 kg. That is fat. I am not fat…or am I?

So once I came back home I immediately jumped on the scale – for once I hoped to show that the Efficient Market Hypothesis was wrong. But the verdict was even more cruel. 84 kg!

So the “consensus forecast” was only half a kilo wrong and way better than my own guestimate. So not only am I fat, but I was also beaten by the “market” in guessing my own weight.

* The market doesn’t lie doesn’t mean the market is always correct. A lie is an intentional falsehood. Market manipulation would be analogous to an intentional lie so it’s not impossible for markets to lie only difficult much of the time.

The practice habits of Alexandre Tharaud

He is one of my favorite pianists, try his Chopin Preludes.  The blog Ionarts reports:

After this residency at the Cité de la Musique, he will take a vacation of three months, during which he will move into a new apartment, with a view of the Seine. He will still not have a piano at home, which he offers as advice to many young musicians. Most important, he says, is not to play on a beautiful piano, because it does not encourage you to work.

Tharaud only practices on pianos in the homes of his friends.