Month: April 2015
Declining Desire to Work and Downward Trends in Unemployment and Participation
That is the next (and for me final) NBER paper from the macro workshop, by Barnichon and Figura, the pdf is here. Their main claim is quite startling, and very important if true. Here is the abstract:
The US labor market has witnessed two apparently unrelated trends in the last 30 years:a decline in unemployment between the early 1980s and the early 2000s, and a decline in labor force participation since the early 2000s. We show that a substantial factor behind both trends is a decline in desire to work among individuals outside the labor force, with a particularly strong decline during the second half of the 90s. A decline in desire to work lowers both the unemployment rate and the participation rate, because a nonparticipant who wants to work has a high probability to join the unemployment pool in the future, while a nonparticipant who does not want to work has a low probability to ever enter the labor force. We use cross-sectional variation to estimate a model of nonparticipants’ propensity to want a job, and we find that changes in the provision of welfare and social insurance, possibly linked to the mid-90s welfare reforms, explain about 50 percent of the decline in desire to work.
We conjecture that two mechanisms could explain these results. First, the EITC expansion raised family income and reduced secondary earnersís (typically women) incentives to work. Second, the strong work requirements introduced by the AFDC/TANF reform would have, through a kind of “sink or swim” experience, left the “weaker” welfare recipients without welfare and pushed them away from the labor force and possibly into disability insurance.
Does immigration enforcement reduce crime?
No. From Thomas J. Miles and Adam B. Cox in the JLE:
Prior research investigates whether immigrants commit more crimes than native-born people. Yet the central policy used to regulate immigration — detention and deportation — has received little empirical evaluation. This article studies a recent policy innovation called Secure Communities. This program permits the federal government to check the immigration status of every person arrested by local police and to take the arrestee into federal custody promptly for deportation proceedings. Since its launch, the program has led to a quarter of a million detentions. We utilize the staggered rollout of the program across the country to obtain differences-in-differences estimates of its impact on crime rates. We also use unique counts of the detainees from each county and month to estimate the elasticity of crime with respect to confined immigrants. The results show that the Secure Communities program has had no observable effect on the overall crime rate.
That is once again via the excellent Kevin Lewis.
Saturday assorted links
Networks and the Macroeconomy
That is the next NBER macro session, the authors are Acemoglu, Akcigit, and Kerr, the pdf is here, and here is the abstract:
The propagation of macroeconomic shocks through input-output and geographic networks can be a powerful driver of macroeconomic fluctuations. We first exposit that in the presence of Cobb-Douglas production functions and consumer preferences, there is a specific pattern of economic transmission whereby demand-side shocks propagate upstream (to input supplying industries) and supply-side shocks propagate downstream (to customer industries) and that there is a tight relationship between the direct impact of a shock and the magnitudes of the downstream and the upstream indirect effects. We then investigate the short-run propagation of four different types of industry-level shocks: two demand-side ones (the exogenous component of the variation in industry imports from China and changes in federal spending) and two supply-side ones (TFP shocks and variation in knowledge/ideas coming from foreign patenting). In each case, we find substantial propagation of these shocks through the input-output network, with a pattern broadly consistent with theory. Quantitatively, the network-based propagation is larger than the direct effects of the shocks, sometimes by severalfold. We also show quantitatively large effects from the geographic network, capturing the fact that the local propagation of a shock to an industry will fall more heavily on other industries that tend to collocate with it across local markets. Our results suggest that the transmission of various different types of shocks through economic networks and industry interlinkages could have first-order implications for the macroeconomy.
Demystifying the Chinese housing boom
That is the next NBER macro paper at these sessions, by Fang, Gu, Xiong, and Zhou, here is the pdf. The abstract is this:
We construct housing price indices for 120 major cities in China in 2003-2013 based on sequential sales of new homes with the same housing developments. By using these indices and detailed information on mortgage borrowers across these cities, we find enormous housing price appreciation during the decade, which was accompanied by equally impressive growth in household income,e xcept in a few first tier cities. Housing market participation by households from the low-income fraction of the urban population remained steady. Nevertheless bottom-income mortgage borrowers endured several financial burdens by using price to‐income ratios over eight to buy homes, which reflected their expectations of persistently high income growth into the future. Such future income expectations could contract substantially in the event of a sudden stop in the Chinese economy and present an important source of risk to the housing market.
Trends and cycles in China’s macroeconomy
That is the NBER paper by Chang, Chen, Waggoner, and Zha, pdf here. Here is the abstract:
We make three contributions in this paper. First, we provide a core of macroeconomic time series usable for systematic research on China. Second, we document, through various empirical methods, the robust findings about striking patterns of trend and cycle. Third, we build a theoretical model that accounts for these facts. The model’s mechanism and assumptions are corroborated by institutional details, disaggregated data, and banking time series, all of which are distinctive of Chinese characteristics. The departure of our theoretical model from standard ones off ers a constructive framework for studying China’s macroeconomy.
Friday assorted links
1. The rise of services in the Chinese economy.
2. What is the best combination of people to achieve maximum height in a human pyramid? (“Questions that are rarely asked”)
3. Star Wars reimagined as an Icelandic saga. Introduction to the same is here.
4. Are there more twenty dollar bills on the ground these days?
5. Chris Blattman on my interview with Jeffrey Sachs.
6. Ecuador tricks visitors into thinking they are in Costa Rica; the effort included fake airport signs and GPS blockers. Costa Rica is upset.
Expectations and Investment
That is the Gennaioli, Ma, and Shleifer paper being presented at the NBER macro conference, pdf here. There are two key points to this paper. First, actual data on the expectations of corporate CFOs have predictive power for investment, even when Tobin’s Q is measured. Second, expectations about future earnings are not rational in the Lucasian sense. I’ll update with remarks in the comments section of this post as the discussion proceeds (feel free to leave comments on my comments), again note that I am not allowed to attribute specific comments to individuals other than the presentation itself.
NBER Annual conference on macroeconomics
Today I am at the NBER annual macroeconomics conference as an observer. The program and papers are here, and they look very interesting. You may be hearing more about this later; I am allowed to blog the presentations but not attribute specific comments to individuals. The Bernanke talk I cannot cover at all.
China tobacco facts of the day
A conglomerate on the order of the old Gulf + Western, China National runs more than 160 cigarette brands, manufactured in about 100 factories across the country, and uses its earnings to invest in banks, luxury hotels, a hydroelectric plant, a golf course, and even drugmakers. Most of its money goes to its owner, the Chinese government; the tobacco industry accounts for about 7 percent of the state’s revenue each year [emphasis added], and China National controls as much as 98 percent of the market. All told, the industry in China employs more than 500,000 Chinese. They are among roughly 20 million people who get some income from tobacco, including members of 1.3 million farming households and workers at 5 million retailers, according to government figures. The extent to which the government is interlocked with the fortunes of China National might best be described by the company’s presence in schools. Slogans over the entrances to sponsored elementary schools read, “Genius comes from hard work. Tobacco helps you become talented.”
From Andrew Martin, there is more here. Of course this helps explain why the Chinese government has such mixed feelings about conducting a successful anti-tobacco campaign. By the way, do any of you know of a source on the 7 percent figure?
What I’ve been reading
1. Dead Wake: The Last Crossing of the Lusitania, by Erik Larson. My favorite of his books, fun and readable as you would expect, many interesting details including what happens to you in water at 55 degrees Fahrenheit.
2. Philip Glass, Words Without Music. “A lot of Einstein on the Beach was written at night after driving a cab.” An excellent memoir of both Glass’s early life and the New York creative world up through 1976 or so.
3. Colm Tóibín, On Elizabeth Bishop. A good example of a book I wish was longer than it was, it is shorter than its 199 pp. might indicate. As a poet I much prefer Bishop to her correspondent Robert Lowell; their letters collection by the way makes for superb reading and drama.
4. Njal’s Saga. I just taught this in Law and Literature, and on the re-read I enjoyed it more than expected. The core model is that arbitration is binding, provided the expected outcome does not stray too far from what violence would bring. The best way to go through the book is first to master the internal story of sections 121-145, then read to the end, and finally go to the beginning. A recommended guide is William Ian Miller’s “Why is Your Axe So Bloody?”; yes that is the same Miller who wrote very good books on disgust and humiliation.
The (tight money) culture that is Dutch
Just when it seemed the image of bankers couldn’t get any more battered or bizarre, the Dutch central bank has fired a 46-year-old female employee claimed to have been working after hours as a highly paid prostitute – specialising in sadomasochism.
The Dutch central bank forbids “indecent behavior,” she had failed to register with the local chamber of commerce or pay appropriate taxes, and she was in violation of zoning laws.
There is more at the link.
Mark Zuckerberg chooses Michael Chwe’s *Rational Ritual* for his book club
I will second the recommendation. Michael is a political scientist at UCLA, and this volume is one of the most important social books of the last fifteen years. He shows the importance of “common knowledge” in explaining social phenomena, namely we create rational rituals so that others can see we are acting in concert with them. It’s all about public ceremonies, parades, dances, and meetings. It’s also why good Super Bowl commercials can be so effective. The work dates from 2001, but it seems more relevant each year.
Business Insider puts it well:
Chwe’s concept is readily apparent in the dynamics of social media. When a media organization posts a link to an online article on Facebook, for example, and people begin “liking” it, others will begin to assign some level of importance to the story and some will be compelled to share it and discuss it. The idea of “common knowledge” may also lend itself to thinking about advertising strategies on social media.
In this regard, by the way, the openness of the internet may make us more rather than less conformist. Here is a good review of the book.
Turkish economic myths
That is a new must-read post from Dani Rodrik. Here is a pieced-together excerpt:
…low domestic saving has been the perennial constraint on the Turkish economy…Under Erdogan, the constraint has become ever more binding, as the saving rate (and particularly, the private saving rate) has come down…
So how has Turkey overcome this constraint over the last 12 years? By applying the same recipe of macroeconomic populism it has always relied on to generate growth – by borrowing, especially short-term, to sustain domestic consumption and investment. This strategy typically bears fruit as long as finance is cheap and available. But it comes at the cost of accumulating fragility and increased vulnerability to reversals in financial market sentiment. It often ends up in crisis as the funds dry up.
The novelty under AKP is that the populist strategy was modified in two respects. First, there was much greater reliance on foreign capital inflows and less reliance on printing money. Second, there was a switch from public-sector to private-sector borrowing.
There are useful pictures at the link.
Is Capitalism Making Us Stupid?
Joseph Heath’s Enlightenment 2.0 is one of the best books I have read in years. I offer an extensive review at the New Rambler. Here’s the opening:
Joseph Heath is a Canadian philosopher who is unusually conversant with economics and also unusually capable of writing sparkling prose for a popular audience. His earlier book Economics Without Illusions was split into 6 right-wing fallacies and 6 left-wing fallacies, and he did a commendable job on both sides. Heath has his own left-liberal point of view: the subtitle of Economics Without Illusions was Debunking the Myths of Modern Capitalism and in the original Canadian version, the book was subtitled Economics For People Who Hate Capitalism. However, I like capitalism and I still enjoyed it! Enlightenment 2.0 is Heath’s foray into political philosophy. Drawing on psychology, economics and political science, Enlightenment 2.0 is a brilliant defense of reason, an important call for a more rational politics, and a great read.
Heath is worried that the foundations of liberal society are being eroded by the cultural denigration of reason combined with ruthlessly competitive economic and political forces that exploit the biases and hooks of our unreasoning mind.
Although I admire Enlightenment 2.0, I answer the question of the post differently than does Heath and my review contains plenty of critical commentary. Ayn Rand, Idiocracy, mind viruses and other interesting characters make an appearance. Read the whole thing.