Month: July 2015
Which book has the most page-for-page wisdom?
The Stoics aside, most of these Twitter nominations are terrible. What comes to mind immediately for me is:
Tocqueville’s Democracy in America
Pascal’s Pensees
Hume’s Enquiry
Jonathan Swift, Gulliver’s Travels or Melville’s Moby Dick
That’s off the top of my head, I am sure I am forgetting some strong candidates. Plato is too Straussian (not that there’s anything wrong with that…), Aristotle is too dull and it is often just lecture notes anyway, many other writers are too prolix, and contemporary books typically don’t have enough breadth, or for that matter wisdom, to top this list.
What is your pick?
Two deals in a day
In my opinion, neither will stick, and from surface indications neither arrangement sounds very effective. But probably both have to be tried. One deal opens the way for true Grexit, if the deal fails. The U.S.-Iran agreement opens the way for an actual attack on Iran, or some other non-constructive form of engagement (in a proxy war?), if the deal fails. These deals thus each contain a very real streak of danger.
I give each deal about a 30-40% chance of succeeding. Above all, these deals show the limits of what is possible, and not possible, in international affairs where there is not an obvious concordance of self-interest.
You will read much about whether these are good or bad deals. But sometimes the positive perspective is more illuminating than the normative. In both cases, the relevant participants still “have a deal in their system,” and so we will be working through the logic of these agreements, for better or worse.
Keep your fingers crossed. In the meantime, even if you think, as I do, that both of these deals will fail, these are still — stochastically speaking — big wins for Obama. Let’s just call July “Obama’s month.”
The real internet of things
People are colossally underestimating the Internet of Things. It’s not about alarm clocks that start your coffee maker, or about making more “things” talk to each other on a global network. The IoT will fundamentally alter how humans interact with the physical world, and will ultimately register as more significant than the Internet itself.
The major technical components
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Universal Daemonization will give every object (humans, businesses, cars, furniture) a bi-directional digital interface that serves as a representation of itself. These interfaces will broadcast information about the object, as well as provide interaction points for others. Human objects will display their favorite books, where they grew up, etc. for read-only information, and they’ll have /connect interfaces for people to link up professionally, to request a date, or to digitally flirt if within 50 meters, etc. Businesses will have APIs for displaying menus, allergy information if it’s a restaurant, an /entertainment interface so TV channels will change when people walk into a sports bar, and a /climate interface for people to request a temperature increase if they’re cold.
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Personal Assistants will consume these services for you, letting you know what you should know about your surroundings based on your preferences, which you’ve either given it explicitly or it’s learned over time. They’ll also interact with the environment on your behalf, based on your preferences, to make the world more to your liking. So they’ll order a water when you sit down to eat at a restaurant, send a coffee request (and payment) to the barista as you walk into your favorite coffee shop, and raise the temperature in any build you walk into because it knows you have a cold.
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Digital Reputation will be conveyed for humans through their daemons and federated ID. Through a particular identity tied to our real self, our professional skills, our job history, our buying power, our credit worthiness—will all be continuously updated and validated through a tech layer that works off of karma exchanges with other entities. If you think someone is trustworthy, or you like the work they do, or you found them hilarious during a dinner party, you’ll be able to say this about them in a way that sticks to them (and their daemon) for others to see. It’ll be possible to hide these comments, but most will be discouraged from doing so by social pressure.
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Augmented Reality will enable us to see the world with various filters for quality. So if I want to see only funny people around me, I can tell Siri, “Show me the funniest people in the room.”, and 4 people will light up with a green outline. You can do the same for the richest, or the tallest, or the people who grew up in the same city as you. You’ll be able to do the same when looking for the best restaurants or coffee shops as you walk down an unfamiliar street.
I mostly agree…but when? For the pointer I thank @elbowspeak.
What kind of Greek deal is on the table?
Hugo Dixon offers some very useful remarks. And here is a good running survey from Politico. I’ll add two points. First, all of a sudden Merkel has lost the “blame game” battle. [Update: But the actual reality now seems to be a deal will be reached, and I suspect the process will be forgotten, or judged only on the basis of whether the deal works.] Second, I am reading many, many dramatic remarks about the collapse of European institutions, etc. Will these be retracted if they are not supported by market prices upon opening? I don’t think so.
Sunday assorted links
Latin American productivity problems
The Economist had a good feature story on this topic, here are a few points:
1. According to the IMF, Latin America will grow at only 0.9% this year.
2. Brazil may do -1.25%, while Argentina and Venezuela continue to deteriorate.
3. Given the location of South America, it is harder for those countries to plug into global supply chains. Of the Latin countries, only Mexico has managed this, largely because of its proximity to the United States. Yet even Mexico has grown an average of only 2.4% a year over the last twenty years.
4. Latin American productivity levels were closer to those of the United States in 1960 than they are today.
5. There is far too much labor in the informal economy.
6. Latin America as a whole invests only 3% of its gdp in infrastructure, compared to 6% for India and 9% for China.
China’s aging is an overrated problem
Baozhen Luo has a good article on this theme. The problem is well-known, but the potential solutions don’t receive enough discussion.
For instance simply raising the retirement age to sixty-five could keep more than forty million men in the work force.
The Chinese employment rate has been increasing steadily, as has Chinese productivity. In other words, improvements in both labor quantity and labor quality can help offset the aging problem. Countries on the technological and efficiency frontier don’t have nearly the same room for improvement.
How much of Chinese education is about signaling?
Alex Eble and Feng Hu have a new and interesting paper (pdf) on this topic:
Wages are positively correlated with years of schooling. This correlation is largely driven by two mechanisms: signaling and skill acquisition. We exploit a policy change in China to evaluate their relative importance. The policy, rolled out from 1980 to 2005, extended primary school by one year. Affected individuals must then complete more schooling to obtain their highest credential, the main signal of interest. If the primary mechanism behind schooling returns is signaling, we would expect little change in the distribution of credentials in the population, but a large increase in schooling. If skill acquisition dominates, we should see no change in length of schooling but a change in credentials. Our results are consistent with the signaling story. Further consistent with such a story, we estimate that the labor market return to another year of schooling is very small, though greater for the less-educated. We estimate that this policy, while redistributive, likely generates a net loss of at least tens of billions of dollars, reallocating nearly one trillion person-hours from the labor market to schooling with meager overall returns.
In a nutshell, that’s lots of signaling. Might the pointer there have been from Ben Southwood? I am no longer sure. Via Nathaniel Bechhofer, here is a recent study of education and earnings from U.S. data.
Post a bond or five-year “temporary” Grexit?
That is the latest development, albeit not the final word:
Should no deal be forthcoming, the German government has made preparations to negotiate a temporary five-year euro exit, providing Greece with humanitarian aid while it makes the transition.
An incendiary plan drafted by Berlin’s finance ministry, with the backing of Angela Merkel, laid out two stark options for Greece: either the government submits to drastic measures such as placing €50bn of its assets in a trust fund to pay off its debts, and have Brussels take over its public administration, or agree to a “time-out” solution where it would be expelled from the eurozone.
Finland, the Netherlands, and Slovakia, among others, don’t seem keen to have Greece continuing in the eurozone. And so yet another “final deadline” is approaching…
Saturday assorted links
Olivier Blanchard on Greek austerity
It was inevitable, not the result of some bad policy choice by outsiders, foisted on Greece:
Even before the 2010 program, debt in Greece was 300 billion euros, or 130% of GDP. The deficit was 36 billion euros, or 15½ % of GDP. Debt was increasing at 12% a year, and this was clearly unsustainable.
Had Greece been left on its own, it would have been simply unable to borrow. Given gross financing needs of 20–25 % of GDP, it would have had to cut its budget deficit by that amount. Even if it had fully defaulted on its debt, given a primary deficit of over 10% of GDP, it would have had to cut its budget deficit by 10% of GDP from one day to the next. These would have led to much larger adjustments and a much higher social cost than under the programs, which allowed Greece to take over 5 years to achieve a primary balance.
Even if existing debt had been entirely eliminated, the primary deficit, which was very large at the start of the program, would have had to be reduced. Fiscal austerity was not a choice, but a necessity. There simply wasn’t an alternative to cutting spending and raising taxes. The deficit reduction was large because the initial deficit was large. “Less fiscal austerity,” i.e., slower fiscal adjustment, would have required even more financing cum debt restructuring, and there was a political limit to what official creditors could ask their own citizens to contribute.
The full link is here. Here is Hugo Dixon on the new deal on the table, the one where Syriza finally and wisely realizes it has no alternative to austerity. I’ll stick with my Twitter prediction that yes there will be another “deal” of sorts, but it will break down rather rapidly, leading to true Grexit.
Iceland and China, Department of Uh -Oh
One of the most stunning and shocking findings of the Icelandic SIC report was the widespread use of shares as collaterals for loans in all Icelandic banks, small and large but most notably the three largest ones – Kaupthing, Landsbanki and Glitnir.
It is necessary to distinguish between two types of lending against shares as practiced in Iceland: one is a bank funding purchase of its own shares, with only the shares as collaterals. The other type is taking other shares as collaterals.
These loans with shares as collaterals were mainly offered to the banks’ largest shareholders – in the big banks these were the main Icelandic business leaders – their partners and bank managers. In the smaller banks local business magnates who in many cases were partners to those Icelandic businessmen who operated abroad, as well as in Iceland. Thus, this practice defined a two tier banking system: with services like these to a small group of clients – that I have called the “favoured clients” – and then normal services for anyone else.
As a general banking model it would not make sense – the risk is far too great.
That is from Sigrún Davíðsdóttir, there is much more at the link.
Endogenous liquidity and the business cycle
That is the title of a Saki Bigio paper, just published in the American Economic Review. It is illustrative of the state of knowledge on how financial frictions contribute to the explanation of business cycles. Here is the abstract:
I study an economy where asymmetric information in the quality of capital endogenously determines the amount of liquidity available. Liquid funds are key to relax financial constraints on investment and employment. These funds are obtained by selling or using capital as collateral. Liquidity is determined by balancing the costs of obtaining liquidity under asymmetric information against the benefits of relaxing financial constraints. Aggregate fluctuations follow increases in the dispersion of capital quality which raise the cost of obtaining liquidity. The model can generate patterns for quantities and credit conditions similar to the Great Recession.
Here is an ungated copy of the paper (pdf). It is not quite correct to call this “real business cycle theory,” yet nonetheless this work stands as a rebuttal to those who are fond of criticizing…real business cycle theory.