Month: July 2014
Will the U.S. government inflate away the public debt?
For the most part, no, although financial repression is an issue to look out for. There is a new NBER Working Paper by Jens Hilscher, Alon Raviv, and Ricardo Reis which works through the numbers:
We propose and implement a method that provides quantitative estimates of the extent to which higher- than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for inflation at different horizons. The estimates suggest that it is unlikely that inflation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead inflation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.
“Financial repression will be a harbinger of inflation” is an underrated sentence. Another is “short-term debt structure is the new gold standard,” as it limits the revenue gains from higher inflation. There are ungated copies of the paper here.
Father Hires In-Game “Hitmen” To Deter Son From Playing (markets in everything)
Here is one way to boost the employment to population ratio, two birds with one stone you might say:
Feng’s 23 year-old son, “Xiao Feng” (小冯) started playing video games in high school. Through his years of playing various online games, he supposedly thought himself a master of Chinese online role playing games. According to his father, Xiao Feng had good grades in school, so they allowed him to play games; but when he couldn’t land a job they started looking into things. He, however, says he simply couldn’t find any work that he liked. Feng was annoyed that his son couldn’t even tough it out for three months at a software development company.
Unhappy with his son not finding a job, Feng decided to hire players in his son’s favorite online games to hunt down Xiao Feng. It is unknown where or how Feng found the in-game assassins—every one of the players he hired were stronger and higher leveled than Xiao Feng. Feng’s idea was that his son would get bored of playing games if he was killed every time he logged on, and that he would start putting more effort into getting a job.
The full story is here, and for the pointer I thank Michael Smiddy.
Very good fragments of sentences
…trade typically favors the poor, who concentrate spending in more traded sectors.
That is from Pablo D. Fajgelbaum and Amit K. Khandelwal, the full paper is here.
Assorted links
1. “One was falsely accused of being a moslem, and the other was falsely accused of not being a moslem.”
2. A measure of systemic risk for China.
3. A new and better way of using consumption risk to explain the global cross-section of returns? (pdf)
4. In praise of Lloyd Metzler. And John Cochrane defends reverse repo and criticizes Sheila Bair.
5. A theory (highly speculative) about what Israel has been trying to prevent.
6. Ronald Coase and the Fabians agreed on policy toward the BBC, with new substantive material by Coase, previously unavailable.
Why does the U.S. economy do better under Democratic Presidents?
Alan S. Blinder and Mark W. Watson have a useful unpacking of this question, here is the abstract summarizing their conclusions:
The U.S. economy has grown faster—and scored higher on many other macroeconomic metrics—when the President of the United States is a Democrat rather than a Republican. For many measures, including real GDP growth (on which we concentrate), the performance gap is both large and statistically significant, despite the fact that postwar history includes only 16 complete presidential terms. This paper asks why. The answer is not found in technical time series matters (such as differential trends or mean reversion), nor in systematically more expansionary monetary or fiscal policy under Democrats. Rather, it appears that the Democratic edge stems mainly from more benign oil shocks, superior TFP performance, a more favorable international environment, and perhaps more optimistic consumer expectations about the near-term future. Many other potential explanations are examined but fail to explain the partisan growth gap.
The Demand and Supply of Sex
Alternet: The idea that men are naturally more interested in sex than women is [so] ubiquitous that it’s difficult to imagine that people ever believed differently. And yet for most of Western history, from ancient Greece to beginning of the nineteenth century, women were assumed to be the sex-crazed porn fiends of their day. In one ancient Greek myth, Zeus and Hera argue about whether men or women enjoy sex more. They ask the prophet Tiresias, whom Hera had once transformed into a woman, to settle the debate. He answers, “if sexual pleasure were divided into ten parts, only one part would go to the man, and and nine parts to the woman.” Later, women were considered to be temptresses who inherited their treachery from Eve. Their sexual passion was seen as a sign of their inferior morality, reason and intellect, and justified tight control by husbands and fathers. Men, who were not so consumed with lust and who had superior abilities of self-control, were the gender more naturally suited to holding positions of power and influence.
Early twentieth-century physician and psychologist Havelock Ellis may have been the first to document the ideological change that had recently taken place. In his 1903 work Studies in the Psychology of Sex, he cites a laundry list of ancient and modern historical sources ranging from Europe to Greece, the Middle East to China, all of nearly the same mind about women’s greater sexual desire.
The ancient belief is consistent with the well known fact that in ancient times when a man went to a bordello the women would line up and bid for the right to sleep with him.
In other words, the ancients believed a lot of strange things at variance with the facts (which isn’t to say that the switch in belief and its timing isn’t of interest or that these kinds of beliefs no longer sway with the times). More at the link.
Questions that are rarely asked
If monopsony power is an important feature of the labor market, and monopsony power should be prevalent when firms are bigger and therefore have a larger share of the local industry, then why do big firms pay more than small firms? The small mom and pops should be closest to operating in a competitive labor market and have little bargaining power, but they pay less. Maybe the productivity effects of big retailer outweigh the monopsony effect, but that just is another way of saying it’s not as an important feature of the market.
That is from Adam Ozimek.
How feasible is wealth transfer taxation?
There is a newly published paper by Paola Profeta, Simona Scabrosetti, and Stanley L. Winer. The most concrete statement of the argument is that wealth is held disproportionately by the elderly, and they will oppose wealth taxes just as they oppose cuts in Medicare. And since 1965 wealth taxation has in fact gone down in many Western countries, even though some theoretical arguments may militate in its favor. The abstract of the paper is this:
We present an empirical model of wealth transfer taxation in the revenue systems of the G7 countries—Canada, France, Germany, Italy, Japan, the UK, and the US—over the period from 1965 to 2009. Our model emphasizes the influences of population aging and of the stock of household wealth in an explanation of the past and likely future of this tax source. Simulations with the model using U.N. demographic projections and projections of household wealth suggest that even in France and Germany where reliance on wealth transfer taxation has been increasing for part of the period studied, wealth transfer taxes can be expected to wither away as population aging deepens over the next two decades. Our results indicate that recent tax designs that rely upon the taxation of wealth transfers to preserve equity in the face of declining taxation of capital incomes may be, in this respect, politically infeasible for the foreseeable future. We conclude by using the case of wealth transfer taxation to raise the general question of the extent to which the consistency of a proposed reform with expected political equilibria ought to play a role in the design of a normative policy blueprint.
An ungated version is here. For the pointer I thank the excellent Kevin Lewis.
Germany fact of the day
…in Germany, the government is rolling out a red carpet by simplifying immigration procedures, funding free language classes, even opening “welcome centers” for newcomers looking to carve out a piece of the German dream.
In the rankings of the globe’s most prosperous countries, this economic powerhouse of 82 million has now leapfrogged Canada, Britain, Italy and Spain to become the largest destination for immigrants after the United States, according to the Paris-based Organization for Economic Cooperation and Development.
The article is here.
China fact of the day, or why Chinese food will decline in quality (and rise in safety)
In the United States, at least 70 percent of all the food we eat each year passes through a cold chain. By contrast, in China, less than a quarter of the country’s meat supply is slaughtered, transported, stored or sold under refrigeration. The equivalent number for fruit and vegetables is just 5 percent.
The article has other points of interest, an excellent piece by Nicola Twilley.
Assorted links
1. The “merge rudely” movement.
3. Does the North Carolina experiment prove anything?
4. Is there planned obsolescence for iPhones?
5. Sticky real wages and the Great Reset. And the new economics of the family.
6. Malcolm Gladwell shares life lessons, including on board games.
We’re not as wealthy as we thought we were
The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower.
…“The housing bubble basically hid a trend of declining financial wealth at the median that began in 2001,” said Fabian T. Pfeffer, the University of Michigan professor who is lead author of the Russell Sage Foundation study.
From Anna Bernasek, there is more here. And background here.
What is the cheapest form of green power? (let’s ask Petr Beckmann)
From Free Exchange:
…levelised costs do not take account of the costs of intermittency…
Seven solar plants or four wind farms would thus be needed to produce the same amount of electricity over time as a similar-sized coal-fired plant. And all that extra solar and wind capacity is expensive.
If all the costs and benefits are totted up using Mr Frank’s calculation, solar power is by far the most expensive way of reducing carbon emissions. It costs $189,000 to replace 1MW per year of power from coal. Wind is the next most expensive. Hydropower provides a modest net benefit. But the most cost-effective zero-emission technology is nuclear power. The pattern is similar if 1MW of gas-fired capacity is displaced instead of coal. And all this assumes a carbon price of $50 a tonne. Using actual carbon prices (below $10 in Europe) makes solar and wind look even worse. The carbon price would have to rise to $185 a tonne before solar power shows a net benefit.
There is more here. The relevant cited studies you can find here.
Assorted links
Sentences about Israel
SES [socio-economic status] correlates to willingness to use military force, but not one’s assessment of the need for it.
That is from a fascinating and just-released book I have been reading from Jonathan D. Caverley, A Theory of Democratic Militarism: Voting, Wealth, and War.