Month: July 2014

*How Adam Smith Can Change Your Life*

The subtitle is An Unexpected Guide to Human Nature and Happiness, and the author is Russ Roberts.  The focus is on Adam Smith’s Theory of Moral Sentiments and why that is an important book.  This is Russ’s best book in my opinion, so you should consider buying it here.  My favorite section is the discussion of the Chilean maid, definitely recommended.

Assorted links

America fact of the day

The manufacturing sector is now operating at 77.8 percent of its capacity, according to Federal Reserve data, well above the 76 percent average during the last expansion and not far from the 79.1 percent peak during the mid-2000s.

That is from Neil Irwin.  As I’ve been saying for over a year, we are no longer at the point where boosting nominal demand will help very much if at all.

Did vouchers cause the decline in Swedish schools?

It seems not.  Responding to an earlier piece by Ray Fisman, Tino Sanandaji writes:

Fisman doesn’t cite any plausible mechanism through which private schools could have dragged down the test scores of the 86 percent of Swedish pupils who attend public schools. The explanation cannot be that private schools have drained public schools of resources, as private schools on average get 4 percent less funding than public schools.

One-third of Sweden’s municipalities still have no private schools. Social Democratic strongholds in northern Sweden in particular were less enthusiastic about licensing such institutions, and if private schools were causing the Swedish school crisis, we would expect municipalities with no privatization to outperform the rest of the country. Two studies by Böhlmark och Lindahl suggest that school results, if anything, fell more in regions with no private schools.

He also argues:

…in my view, the main culprit was the experiment with radically new pedagogical methods. The Swedish school system used to rely on traditional teaching methods. In recent decades, modern “individualist” or “progressive” pedagogic ideas took hold. The idea is that pupils should not be forced to learn using external incentives such as grades, and children should take responsibility for their own learning, driven by internal motivation. Rote memorization and repetition are viewed as old-fashioned relics. Teacher-led lectures have increasingly been replaced by group work and “research projects.”

And this:

The private Swedish schools are not really allowed to innovate where it matters, with their pedagogic methods. The curriculum and rules in the classroom are determined by the state, which also trains teachers in the so called “modern” pedagogic theories. “Swedish schools have comparatively low levels of autonomy over curricula and assessments,” PISA notes.

In practice, what private Swedish schools have control over is management and cost control, and this is where they have directed their efforts. But since the public Swedish schools were pretty well managed to start with, productivity gains from privatization were limited.

For the pointer I thank Daniel B. Klein and Niclas Berggren.

The culture (polity) that is Iceland (jólabókaflóð)

When it comes to mail delivery service in Iceland, two days stand out from the rest. The first is when the IKEA catalogue arrives. The second is when the bókatíðindi shows up in the mailbox.

“This is the Christmas catalogue,” says Bryndís Loftsdóttir of the Icelandic Publishers Association, handing over a copy of last year’s glossy, 208-page tome. “It’s always the same,” she continues in an amused tone. “Weeks before this is published we anxiously get phone calls from people asking, ‘When is it coming? Can I get it now?’”

A copy of the bókatíðindi, which lists approximately 90% of the books published in Iceland each year, is mailed to every household in the country, free of charge. While in most countries the presents under the Christmas tree come in all shapes and sizes, Loftsdóttir jokes that in Iceland one finds a row of neatly wrapped books. “The book is still the most popular Christmas present in Iceland,” she says. There’s even a name for the phenomenon: the “jólabókaflóð,” which means Christmas book flood.

I like the photo at the link.

Facts about non-residential investment

From Neil Irwin at The Upshot:

Five years into the economic recovery, businesses still aren’t plowing much money into big-ticket investments for the future. Nonresidential fixed investment — what businesses spend on equipment, software, buildings and intellectual property — still hasn’t bounced back to its pre-crisis share of the economy, let alone made up for lost ground from the record lows of 2009. As Justin Lahart notes in The Wall Street Journal, equipment spending in particular has averaged 5.2 percent of the economy over the last five years, down from 6.5 percent over the previous half-century.

If firms increased their spending enough to close that gap, it would mean an extra $220 billion in annual economic activity and perhaps a couple of million more jobs. But there may be even more important and lasting consequences for this lack of spending by businesses.

Capital spending improves worker productivity. And worker productivity improves living standards. Less capital spending by businesses means less investment in the kinds of equipment, software and intellectual property that will make the economy more competitive over the long haul.

One simple hypothesis is that it’s not worth spending more on American workers at current wage levels.  As workers, while Americans are quite good, they are just not that much better than a variety of high-IQ individuals in cheaper countries, many of whom now have acceptable infrastructure to work with.

Addendum: Brad DeLong considers potential gdp.

*Storyline*, by The Washington Post

From my email:

The Washington Post today launches ‘Storyline’, a new digital initiative led by economics writer Jim Tankersley examining how U.S. public policy is affecting the lives of Americans across the nation. Storyline will feature a mix of narrative writing, data journalism and visual storytelling to explore big questions like: who’s being lifted by the economic recovery, and who’s left waiting for it to kick in? How are Americans adapting to life under Washington’s immigration deadlock?

http://www.washingtonpost.com/news/storyline

How bad is Chinese debt really?

China’s total debt load has climbed to more than two and a half times the size of its economy, underscoring the difficult challenge facing Beijing as it seeks to spur growth without sowing the seeds of a financial crisis.

The total debt-to-gross domestic product ratio in the world’s second-largest economy reached 251 per cent at the end of June, up from just 147 per cent at the end of 2008, according to a new estimate from Standard Chartered bank.

Such a rapid build-up is far more of a concern than the absolute level of debt, since increases of that magnitude in such a short period have almost always been followed by financial turmoil in other economies.

While calculations of the ratio vary depending on exactly what types of credit are included, several other economists agreed with the new figure. Even those with slightly different calculations said the general trend was clear.

…“China’s current level of debt is already very high by emerging markets standards and the few economies with higher debt ratios are all high-income ones,” said Chen Long, China economist at Gavekal Dragonomics, a research advisory. “In other words China has become indebted before it has become rich.”

The U.S. total debt-to-gdp ratio is now about 260 percent.  From the FT, there is more here.

I also would like to see an estimate of the Chinese wealth-to-income ratio, relative to the U.S. ratio.  I would expect a higher ratio for the United States, which would militate in favor of greater sustainability for American debt, but of course that is why we wish to have the actual numbers.

An Israeli median voter theorem? (model this war)

…on July 13, about four days before the actual incursion began, about 67 percent of Israelis supported a ground operation. By authorizing one, Netanyahu has given the public what it has demanded.

That is from Brent Sasley.

Fred Kaplan wonders whether Israel has lost its ability to think strategically.  Even Max Boot seems to think Hamas will stay in charge of Gaza.

Or is the fear that even intercepted Hamas rockets will in the long run spur too much Israeli emigration?  Are the economics of long-run rocket/shoot-down reciprocity unacceptable to Israel?

A friend of mine suggests that Israel feels the need to send a tough signal to Iran.

Or all of the above?

I am by the way not impressed by various Twitter demands that I should spend more time moralizing about this conflict.  I do think it is deontologically wrong on the part of the Israelis, and I also do not understand their strategy from even a purely nationalistic point of view.  But my voice will have no influence, and I would rather learn something from the comments section about why such strategies are being pursued.  Call me selfish if you wish, I am.

Assorted links

1. The shipping container apartment.

2. Why not buy more store brands?

3. Cows are a good Indian investment after all.

4. Can sanctions stop Putin?

5. Let them eat cosmopolitanism.  But note: I never argue “…that egalitarianism as a political force in America is fundamentally opposed to globalisation.”  I do argue that egalitarians do not usually take a consistently global perspective when framing the recent history of inequality.  I also never argue “…redistribution must necessarily make the economy poorer than it otherwise would be.”  I do argue wealth maximization is a good starting point for thinking about how much redistribution we should do and furthermore that will be some positive amount.

Overall large retailers are raising wages

There is a new NBER Working Paper from Brianna Cardiff-Hicks, Francine Lafontaine, and Kathryn Shaw, and the abstract is this:

With malls, franchise strips and big-box retailers increasingly dotting the landscape, there is concern that middle-class jobs in manufacturing in the U.S. are being replaced by minimum wage jobs in retail. Retail jobs have spread, while manufacturing jobs have shrunk in number. In this paper, we characterize the wages that have accompanied the growth in retail. We show that wage rates in the retail sector rise markedly with firm size and with establishment size. These increases are halved when we control for worker fixed effects, suggesting that there is sorting of better workers into larger firms. Also, higher ability workers get promoted to the position of manager, which is associated with higher pay. We conclude that the growth in modern retail, characterized by larger chains of larger establishments with more levels of hierarchy, is raising wage rates relative to traditional mom-and-pop retail stores.

This is not a surprising result, but it doesn’t receive nearly enough attention in popular discussions of the subject.  There is a related ungated earlier draft here.

The culture that is Russia

Many people in Russia are putting their own spin on recent events:

Did you know Malaysia Air Flight 17 was full of corpses when it took off from Amsterdam? Did you know that, for some darkly inexplicable reason, on July 17, MH17 moved off the standard flight path that it had taken every time before, and moved north, toward rebel-held areas outside Donetsk? Or that the dispatchers summoned the plane lower just before the crash? Or that the plane had been recently re-insured? Or that the Ukrainian army has air defense systems in the area? Or that it was the result of the Ukrainian military mistaking MH 17 for Putin’s presidential plane, which looks strangely similar?

Did you know that the crash of MH17 was all part of an American conspiracy to provoke a big war with Russia?

There is more here from Julia Ioffe.