Month: March 2015
There is an interview with me by Emily Hare in the latest issues of Contagious, a glossy British marketing periodical. Here is one bit:
Q: What should marketing do to ensure it lives up to its potential?
A; This is what I see happening and this may be disquieting for some of your readers. The people who are really good at marketing in this new environment are typically not formal marketers, they are not called marketing agencies, they have not studied marketing. They are people who know some areas very well and then they teach themselves a kind of marketing on the fly. A good examples if Facebook. Mark Zuckerberg is not in any formal sense a marketer, but he’s actually one of the most brilliant marketers that the world has seen in the past few decades. General principles are not that useful anymore. What is paying off is incredibly detailed, context-specific knowledge of particular areas. that’s what it takes to craft unique messages.
At all levels we’re seeing this takeover by the content people and everything is supposed to look authentic, so in a sense, authenticity is the new inauthenticity.
Marketing has never been more important, but life has never been tougher for at least some of the marketers.
I do not believe there is a version of this on line.
Brookings emails me:
Capital income is not growing unboundedly at the expense of labor, and further accumulation of capital in fact most likely means a fall in capital’s share of total income – refuting one of the main theories of economist Thomas Piketty’s popular book Capital in the 21st Century — according to a paper presented today at the Spring 2015 Conference on the Brookings Papers on Economic Activity (BPEA).
Existing studies that show an increase in capital’s share of income miss the growing role of depreciation in short-lived capital, in items such as software, says MIT’s Matthew Rognlie in “Deciphering the Fall and Rise in the Net Capital Share.” Rognlie subtracts depreciation in seven large developed economies (the US, Japan, Germany, France, the UK, Italy, and Canada) to get net capital income, and finds that the only long-term rise in capital’s share of income is in housing. Capital income elsewhere in the economy has grown moderately, but it is only recovering from a large fall that lasted from 1948 through the 1970s.
Piketty’s Capital argues that the role of capital in the economy, after falling during the Depression and two world wars, is set to recover to the high levels of the 19th and early 20th centuries. According to Piketty, wealth will accumulate amid slowing economic growth to push up the capital-to-GDP ratio in the economy, which will then cause an increase in capital’s share of income — and growing inequality.
In contrast, Rognlie finds that a rising capital-to-GDP ratio is most likely to result in a fall in capital’s share of income, since the net rate of return on capital will fall by an even larger proportion than the capital-to-GDP ratio rises. Outside of housing, postwar changes in the value of the capital stock have not led to parallel changes in capital’s share of income. In fact, the value of the capital stock relative to private income reached its highs in the late 1970s and early 1980s, when capital’s share of income was near a low.
Rognlie shows that the share of net income generated by housing has risen in all seven large developed economies since data became available. “Housing’s central role in the long-term behavior of the aggregate net capital share has… not been emphasized elsewhere…Observers concerned about the distribution of income should keep an eye on housing costs,” he writes.
Brad DeLong offers comment.
Here Jim Tankersley has a superb profile of Rognlie and the story behind his comment, MR plays a role too. Recommended.
It’s been a longstanding fear of travelers (or travelers like myself, at least) that global conglomerates like McDonald’s or TGI Friday’s might use the bludgeon of the Big Mac or the bluster of Flair to wipe out everything unique, provincial and good. But what struck me on this trip, not having seen BA for a decade and thus being more sensitive to what had changed, was how a different kind of sameness was permeating Porteño restaurant and bar culture—much more indie and elevated, but just as insidious.
The main argument is that when asking for food tips, you need to consider the age of the responder very carefully, and in many cases you should favor the older recommenders, up to some limit of course. The full article is here, hat tip goes to Yana.
1. Christian Zeal and Activity (John Adams).
2. On the Transmigration of Souls (John Adams, 2002).
I sometimes think of Adams’s best work as pretending to serve up corny and slightly obvious Americana, but in fact offering a mysterious, Eastern, and even Buddhist alternative history of the United States. My other favorite pieces by Adams are the Violin Concerto and The Dharma at Big Sur.
The NYTimes has an article on California’s extreme water drought with the usual apocalyptic imagery (see the video especially):
California is facing a punishing fourth year of drought. Temperatures in Southern California soared to record-high levels over the weekend, approaching 100 degrees in some places. Reservoirs are low. Landscapes are parched and blighted with fields of dead or dormant orange trees.
The apocalyptic scenario needs to be leavened with some basic facts.
California has plenty of water…just not enough to satisfy every possible use of water that people can imagine when the price is close to zero. As David Zetland points out in an excellent interview with Russ Roberts, people in San Diego county use around 150 gallons of water a day. Meanwhile in Sydney Australia, with a roughly comparable climate and standard of living, people use about half that amount. Trust me, no one in Sydney is going thirsty.
So how much are people in San Diego paying for their daily use of 150 gallons of water? About 78 cents. As Matt Kahn puts it:
Where in the Constitution does it say that the people of California have the right to pay .5 cents per gallon of water?
Water is such a small share of most people’s budgets that it could double in price and the effect on income would still be low. Moreover, we don’t even have to increase the price of water for residential or industrial uses. As The Economist points out:
Agriculture accounts for 80% of water consumption in California, for example, but only 2% of economic activity.
What that means is that if agriculture used 12.5% less water we could increase the amount available for every residential and industrial use by 50%–grow those lawns, fill those swimming pools, manufacture those chips!–and the cost would be minimal even if we simply shut down 12.5% of all farms.
Moreover, we don’t have to shut down that many farms, we just have to shut down the least valuable farms and use water more efficiently. If you think water is cheap for San Diego residents it’s much cheaper for farmers. Again from The Economist:
Farmers flood the land to grow rice, alfalfa and other thirsty crops….If water were priced properly, it is a safe bet that they would waste far less of it, and the effects of California’s drought—its worst in recorded history—would not be so severe.
Even today a lot of CA agriculture uses the least efficient flood irrigation system.
According to data from the state Department of Water Resources, 43 percent of California farmland in 2010 used some form of gravity irrigation, an imprecise method that uses relatively large amounts of fresh water and represents a big opportunity for water conservation.
The NYTimes article is worried about farm loss:
“I’m going to fallow two acres of my land immediately,” said Geoffrey C. Galloway, who has a citrus grove on his ranch near Porterville, in the Central Valley. “Depending on how the season goes, we may let another four go.”
…Last year, at least 400,000 acres went unplanted, and farmers reported losses of $2.2 billion, said Mr. Wenger, the head of the farm bureau, who owns a farm in Modesto. “This year we could see easily 50 percent more,” he said. “We are probably going to be looking at well over a million acres.”
California has approximately 25 million acres of farmland. And while our bodily fluids might be precious not every acre of farmland is. A few less acres of farmland producing low value crops in return for a lot more water is a very acceptable tradeoff.
Addendum: Low prices are not always wasteful. David Zetland’s short primer on water policy is available for free as pdf. Matt Kahn’s Fundamentals of Environmental and Urban Economics is on Amazon for Kindle for just $1. Both are very good.
Addendum 2: See also this later post, The Misallocation of Water.
The highly esteemed and extremely proficient Thomas MaCurdy has a new piece in the JPE (jstor) on exactly that question. The news does not surprise me:
This study investigated the antipoverty efficacy of minimum wage policies. Proponents of these policies contend that employment impacts are negligible and suggest that consumers pay for higher labor costs through imperceptible increases in goods prices. Adopting this empirical scenario, the analysis demonstrates that an increase in the national minimum wage produces a value-added tax effect on consumer prices that is more regressive than a typical state sales tax and allocates benefits as higher earnings nearly evenly across the income distribution. These income-transfer outcomes sharply contradict portraying an increase in the minimum wage as an antipoverty initiative.
MaCurdy also writes:
About 35 percent of the total increase in after-tax benefits goes to families with income less than two times the poverty threshold, a common definition of the working poor or near-poor; nearly 13 percent goes to families principally supported by low-wage workers defined as earning wages at or below 117 percent…of the new 1996 minimum wage; and only about 14 percent goes to families with children on welfare.
Unlike most public income support programs, increased earnings from the minimum wage are taxable. Over 25 percent of the increased earnings are collected back as income and payroll taxes…Even after taxes, 27.6 percent of increased earnings go to families in the top 40 percent of the income distribution.
From that same JPE issue, cream skimming effects seem to be pretty small when it comes to school choice.
When it comes to taxes, elasticity pessimism has become way too popular these days. Here are some results pushing back in the opposite direction:
This paper studies the effect of top tax rates on inventors’ mobility since 1977. We put special emphasis on “superstar” inventors, those with the most and most valuable patents. We use panel data on inventors from the United States and European Patent Offices to track inventors’ locations over time and combine it with international effective top tax rate data. We construct a detailed set of proxies for inventors’ counterfactual incomes in each possible destination country including, among others, measures of patent quality and technological fit with each potential destination. We find that superstar top 1% inventors are significantly affected by top tax rates when deciding where to locate. The elasticity of the number of domestic inventors to the net-of-tax rate is relatively small, between 0.04 and 0.06, while the elasticity of the number of foreign inventors is much larger, around 1.3. The elasticities to top net-of-tax rates decline as one moves down the quality distribution of inventors. Inventors who work in multinational companies are more likely to take advantage of tax differentials. On the other hand, if the company of an inventor has a higher share of its research activity in a given country, the inventor is less sensitive to the tax rate in that country.
That is from Akcigit, Stantcheva, and Baslandze, and the NBER link is here. Inventors as a whole migrate at a rate of about eight percent. By the way, you sometimes hear it argued that markets today are more “winner take all.” From a national point of view, that actually could indicate in favor of lower rather than higher rates of taxation, given this inventor mobility effect.
An important but unreported indicator of Ferguson’s dilemma is that half of young African American men are missing from the community. According to the U.S. Census Bureau, while there are 1,182 African American women between the ages of 25 and 34 living in Ferguson, there are only 577 African American men in this age group. In other words there are more than two young black women for each young black man in Ferguson. The problem of missing black men extends to other age groups. More than 40% of black men in both the 20 to 24 and 35 to 54 age groups in Ferguson are missing.
It is worth noting that there are approximately equal numbers of African American boys and girls, under the age of 20, in Ferguson (2,332 boys and 2,341 girls). What has happened to young African American men in Ferguson? There are several possibilities. First, the Census counts only the civilian population, and excludes individuals serving in the Armed Forces. Second, tragically, some of these young men have already died. Third, Census figures do not include individuals who are incarcerated at the time of the survey. Finally, the Census Bureau may undercount homeless men, men who are marginally attached to the community, and men who are primarily engaged in criminal behavior.
That is from Stephen Broners, fascinating throughout. Note that the possibility of differential rates of incarceration does not in general account for the gap, though it likely explains part of the discrepancy.
Mark Kleiman, Angela Hawken and Ross Halperin argue for the return of a technological halfway house. The “house” would be any apartment but monitored:
For the transition from prison to life outside to be successful, it needs to be gradual. If someone needed to be locked up yesterday, he shouldn’t be completely at liberty today. And he shouldn’t be asked to go from utter dependency to total self-sufficiency in one flying leap. He needs both more control and more support. Neither alone is likely to do the job.
Of course, both control and support cost money. But so does prison. The trick is to start the re-entry process before what would otherwise have been the release date, so the money you spend in the community is balanced by the money you’re not spending on a cell.
…Start with housing. A substantial fraction of prison releasees go from a cellblock to living under a bridge: not a good way to start free life. Spend some of the money that would otherwise have financed a prison cell to rent a small, sparsely furnished efficiency apartment. In some ways, that apartment is still a cell and the offender still a prisoner. He can’t leave it or have visitors except as specifically permitted. The unit has cameras inside and is subject to search. But he doesn’t need guards, and doesn’t have to worry about prison gangs or inmate-on-inmate assault.
Drug testing and sanctions can avoid relapse to problem drug use; GPS monitoring can show where the re-entrant is all the time, which in turn makes it easy to know whether he’s at work when he’s supposed to be at work and at home when he’s supposed to be at home. This makes curfews enforceable and keeps him away from personal “no-go” zones (the street corner where he used to deal, the vicinity of his victim’s residence). GPS would also place him at the scene of any new crime he might commit, thus drastically reducing his chances of getting away with it and therefore his willingness to take the gamble.
The apartment functions as a prison without bars.
I appreciate the idea but worry about how many people will end up monitored and for how long. In one way, the problem today is too much monitoring. The easier access to online databases, for example, means that today an arrest record follows one for life. Ten percent of all non-incarcerated men have a felony conviction (even larger numbers have an arrest record). Among blacks, 25% of non-incarcerated men have a felony conviction. Most importantly, an arrest, let alone a felony conviction, makes it very difficult to get a job or in some cases even an apartment.
Ban the box laws, which restrict some kinds of background checks, may be useful. There is a kind of prisoner’s dilemma for background checks. It makes sense for every firm to do a background check (especially when they are so cheap) but when all firms do background checks former felons cannot reintegrate into society and crime ends up being higher than it would be if fewer firms did background checks.
3. What does an economist measure as the most hated college football team? (hint: Boise State)
Sender, Foley, and Fleming write for The FT:
Today, many analysts fear the knock-on effect any Fed tightening will have, particularly on emerging markets, especially when combined with a strong dollar.
Messrs Dalio and Dinner wrote: “If one agrees that either a) we are near the end of the developed country central bankers’ ability to be effective in stimulating money and credit growth or b) the dollar is the world’s reserve currency and that the world needs easier rather than tighter money policies, then one would hope that the Fed will be very cautious about tightening.”
Martin Wolf on related topics is also instructive. I see a few possibilities:
1. Stock and bond markets are at all-time highs, and we Americans are not so far away from full employment, so if we don’t tighten now, when? Monetary policy is most of all national monetary policy.
2. It’s all about sliding along the Phillips Curve. Where are we? Who knows? But risks are asymmetric, so we shouldn’t tighten prematurely. In any case we can address this problem by focusing only on the dimension of labor markets and that which fits inside the traditional AD-AS model.
3. The Fed’s monetary policies have created systemic imbalances, most of all internationally by creating or encouraging screwy forms of the carry trade, often implicit forms. A portfolio manager gains a lot from risky upside profit, but does not face comparable downside risk from trades which explode in his or her face. The market response to the “taper talk” of May 2013 (egads, was it so long ago?) was just an inkling of what is yet to come. There is no way to avoid that problem, no one ever will be readier for the adjustment than they are now, so we have to get it over with and take the (international) pain sooner rather than later. So what if a bunch of foreign companies go bankrupt because of dollar-denominated debt? They are insolvent anyway.
4. The Fed’s monetary policies have created systemic imbalances, most of all internationally by creating or encouraging screwy forms of the carry trade, often implicit forms. Fortunately, we have the option of continuing this for another year or more, at which point most relevant parties will be readier for a withdrawal of the stimulus. That is what patience is for, after all. To get people ready. To allow prudent Indonesian, Chinese, and Brazilian foreign companies to unwind or hedge their positions in a careful and measured manner, as they are wont to do. After all, the taper talk of May 2013 was just talk, so a little more talk, and a little more time, is needed.
5. We should continue current Fed policies more or less forever. Why not? The notion of systemic imbalances is Austrian metaphysics, so why pull the pillars out from under the temple? Let’s charge straight ahead, because at least we know the world has not blown up today.
There’s rather a lot at stake here, isn’t there?
Here is Edward Hugh on when the ECB might start to think about tapering. Johannes, we hardly knew ye!
James McPherson, The War That Forged a Nation: Why the Civil War Still Matters.
Edward Mendelson, Moral Agents: Eight Twentieth Century Writers. Trilling, Dwight Macdonald, Kazin, William Maxwell, Bellow, Mailer, Auden, and O’Hara.
2. Haiti doesn’t seem to have a Congress any more, Martelly is governing by executive order, and only eleven elected officials remain in the country.
6. Speculations about Raghuram Rajan (speculative, he may just be opining as an economist typically would).
7. Oddly, I am seeing some Twitter boasts that record warm temperatures in the UK are leading to rapid cuts in carbon emissions.
Our social and political life is awash in unconsciously held Christian ideas broken from the theology that gave them meaning, and it’s hungry for the identification of sinners—the better to prove the virtue of the accusers and, perhaps especially, to demonstrate the sociopolitical power of the accusers.
That is from Joseph Bottum, via PW.