Month: March 2014

Should we still get rid of the U.S. corporate income tax?

I know this argument runs against the mood affiliation of our times, but the arguments for eliminating the corporate income tax still seem pretty good to me.  Here is a recent paper by Hans Fehr, Sabine Jokisch, Ashwin Kambhampati, and Laurence J. Kotlikoff.  The abstract runs as follows:

We simulate corporate tax reform in a single good, five-region (U.S., Europe, Japan, China, India) model, featuring skilled and unskilled labor, detailed region-specific demographics and fiscal policies. Eliminating the model’s U.S. corporate income tax produces rapid and dramatic increases in the model’s level of U.S. investment, output, and real wages, making the tax cut self-financing to a significant extent. Somewhat smaller gains arise from revenue-neutral base broadening, specifically cutting the corporate tax rate to 9 percent and eliminating tax loop-holes.

The NBER copy is here.  An ungated copy you will find here (pdf).

How well do the Irish remember what price they paid for their homes?

It may be the single biggest purchase in their lives but most Irish homeowners have less than total recall when it comes to remembering just how much they paid for their homes, according to new research published by the Central Bank.

More than 60 per cent of those surveyed claimed to have paid substantially less for their homes than they actually did with most of those questioned getting the purchase price wrong by tens of thousands of euro.

More than 20 per cent of those polled underestimated the price they paid for their home by up to €30,000 while closer to 30 per cent were out by between €30,000 and €120,000.

Could the mechanism be regret minimization?:

“Perhaps people are trying to reassure themselves that their losses as a result of the property crash are not as great as they are,” Mr McQuinn told The Irish Times. “We can’t really say that with 100 per cent certainty but given the scale of the negative equity involved in many of the homes, it certainly looks that way.”

The article is here, the research paper is here (pdf) and for the pointer I thank Aidan Walsh.

*Nature’s Oracle*

The author is Ullica Segerstrale and the subtitle of this excellent and fascinating book is The Life and Work of W.D. Hamilton.  Here is one bit:

She had decided to break up with him.  The reason for this…was Bill’s strange idea of marriage.  Bill had told her that they should have no more than two children, of which one child would be his and another her child with another man.  His girlfriend thought about this and realized she could not agree.  She also wondered what lay behind this suggestion.  (She probably did not recognize Bill’s experimental scenario as coming straight out of some book like Out of the Night.)

This book has many excellent lines, including:

There is a famous New Zealand expression: “Anything can be fixed with a number 8 wire.”

And:

Who carries around cyanide?

Robert Trivers makes numerous cameos as well.

Male dance moves that catch a woman’s eye

The bottom line seems to be this:

By using cutting-edge motion-capture technology, we have been able to precisely break down and analyse specific motion patterns in male dancing that seem to influence women’s perceptions of dance quality. We find that the variability and amplitude of movements in the central body regions (head, neck and trunk) and speed of the right knee movements are especially important in signalling dance quality. A ‘good’ dancer thus displays larger and more variable movements in relation to bending and twisting movements of their head/neck and torso, and faster bending and twisting movements of their right knee. As 80 per cent of individuals are right-footed, greater movements of the right knee in comparison with the left are perhaps to be expected. In comparative research, there is extensive literature on the signalling capacities of movement…Researchers have suggested that females prefer vigorous and skilled males; such cues are derived from male motor performance that provides a signal of his physical condition.
The paper is here (pdf), via Samir Varma.

A bit more on Bitcoin-based innovation

Such “permissionless innovation”, in the jargon, should in time result in a cornucopia of applications. Bitcoin’s technology could be used to transfer ownership both in other currencies and of any kind of financial asset. This, in turn, would allow the creation of decentralised exchanges which let asset holders trade directly. And money could be “programmed” to come with conditions: for instance, it might be released only if a third person agrees.

Some want ownership of devices—a car, say—to be represented by a Bitcoin, or a tiny fraction of it. The car would work only when turned on with a key that includes the Bitcoin token. This would make managing ownership of and access to physical assets much easier: the token could be sold or rented out temporarily, enabling flexible peer-to-peer car-rental schemes. Such “smart property” would turn the blockchain into a global registry of ownership in physical assets.

All that may sound like science fiction, but a growing number of startups are working on bringing such applications to market. Coloured Coins and Mastercoin will soon release software that enables trade in other financial assets, including stocks and bonds. The most ambitious project is Ethereum: it will launch a new blockchain, similar but unrelated to Bitcoin, with a programming language to encode financial instruments and other contracts.

From The Economist there is more here.

Have a sofa in the kitchen

That is advice from Richard Branson:

10. Do what you love and have a sofa in the kitchen

You only live one life, so I would do the thing that you are going to enjoy. When life boils down, this might sound like a little much coming from me, I do have my own little island in the Caribbean, but when we are on that island, we tend to just live in the kitchen.

The rest of the advice, more pedestrian, is here, and the original pointer is from Tim Harford.

Still Burned by the FDA

Excellent piece in the Washington Post on the FDA and sunscreen:

…American beachgoers will have to make do with sunscreens that dermatologists and cancer-research groups say are less effective and have changed little over the past decade.

That’s because applications for the newer sunscreen ingredients have languished for years in the bureaucracy of the Food and Drug Administration, which must approve the products before they reach consumers.

…The agency has not expanded its list of approved sunscreen ingredients since 1999. Eight ingredient applications are pending, some dating to 2003. Many of the ingredients are designed to provide broader protection from certain types of UV rays and were approved years ago in Europe, Asia, South America and elsewhere.

If you want to understand how dysfunctional regulation has become ponder this sentence:

“This is a very intractable problem. I think, if possible, we are more frustrated than the manufacturers and you all are about this situation,”

Who said it? Janet Woodcock, director of the FDA’s Center for Drug Evaluation and Research! Or how about this:

Eleven months ago, in a hearing on Capitol Hill, FDA Commissioner Margaret A. Hamburg told lawmakers that sorting out the sunscreen issue was “one of the highest priorities.”

If this is high priority what happens to all the “low priority” drugs and medical devices?

The whole piece in the Washington Post is very good, read it all. I first wrote about this issue last year.

Addendum: See FDAReview.org for more on the FDA regulatory process and its reform.

Corvid time preference is for quality, not quantity

Or so it seems from one study:

How do the corvids stack up against us? “Crows and ravens performed comparably to primates and children tested in [similar] tasks,” Hillemann said. But one difference between the avian brain and the primate brain may be the way that they consider quality versus quantity. Birds usually aren’t willing to wait in order to increase the amount of food, only to optimize the quality of their reward. “This may be unique to birds,” she adds, “because carrying a large amount of food can be disadvantageous in flight.” On the other hand, a human child can fit two marshmallows in his mouth just as easily as one. While more research is needed, this lends support to the notion that this sort of impulse control is a case of convergent evolution, having evolved independently in the avian lineage and in our primate lineage.

I found the entire post of interest.

How much is Chinese defense spending really going up?

I don’t feel I have gotten to the bottom of this, but here is an interesting contrarian perspective:

“According to my records, 2013 is the second year in a row in which China’s actual defense spending wound up being significantly less than was announced at the beginning of the year,” said Roger Cliff, senior fellow with the Asia Security Initiative at the Atlantic Council.

“The announced budget in March 2013 was … an increase of 10.7 percent over 2012. Actual expenditure in 2013 was … an increase of only 7.6 percent over 2012.”

The announced increases also never account for inflation, Cliff said. “Inflation in 2013 was expected to be 3.2 percent, official inflation figures for 2013 haven’t been released yet, as far as I know, so the increase in defense spending from 2012 to 2013 was only 4.3 percent in real terms.

“In fact, since 2009, China’s defense budget has grown by an average of only 4.7 percent in real terms,” Cliff said. “And yet, because the increases are always announced in nominal terms, not real terms, and the budgets announced at the beginning of the year have been exceeding the amount actually spent, everyone is still talking about ‘annual double-digit increases in China’s defense spending.’ ”

The full article is here.

Are the Long-Term Unemployed on the Margins of the Labor Market?

There is new Brookings research by Alan B. Krueger, Judd Cramer, and David Cho:

The short-term unemployment rate is a much stronger predictor of inflation and real wage growth than the overall unemployment rate in the U.S. Even in good times, the long-term unemployed are on the margins of the labor market, with diminished job prospects and high labor force withdrawal rates, and as a result they exert little pressure on wage growth or inflation.

Consistent with my earlier views, this work is suggesting that many of the long-term unemployed are/have become an economically segmented group.  This is noteworthy too, as it implies the problem is not merely initial discrimination:

…even after finding another job, reemployment does not fully reset the clock for the long-term unemployed, who are frequently jobless again soon after they gain reemployment: only 11 percent of those who were long-term unemployed in a given month returned to steady, full-time employment a year later.

I would consider that evidence for a notion of zero marginal product workers.  Furthermore, in my view (I am not speaking for the authors here), right now further inflation is as likely to harm as to help these individuals.  To ask whether the Fed “should give up” on the long-term unemployed is a biased framing which is more likely to mislead us than anything else.

There is a good piece up at 538:

Krueger and his coauthors, Princeton economists Judd Cramer and David Cho, find evidence that the long-term unemployed aren’t getting jobs even in parts of the country where the job market is comparatively healthy, suggesting that a stronger economic rebound won’t be enough to put them back to work.

Assorted links