Month: December 2015

Thursday assorted links

What is the expected rate of American price inflation?

Here is Stephen Williamson:

We can use inflation swaps data, as Summers does; we can look at the breakeven rates implied by the yields on nominal Treasury securities and TIPS; and we can look at survey measures. What do people who do forecasting for a living, and who have access to all of that data, say? The Philly Fed’s most recent Survey of Professional Forecasters has predictions of PCE headline inflation for 2016 and 2017, respectively, of 1.8% and 1.9%, which is pretty close to the 2% PCE inflation target. A Wall Street Journal survey shows a CPI inflation forecast that seems roughly consistent with the December FOMC projections for PCE inflation. So, it seems that “most available data,” filtered through the minds and models of professional forecasters, suggests no less optimism than the FOMC is expressing in its projections, about achieving 2% inflation in the future.

Most of the post is about Summers, but I am more interested in noting that the Fed can indeed achieve — at least roughly — the rate of price inflation it desisres.  Under liquidity trap theories, you would think that price inertia would have worn off a bit by now, but if anything the American economy seems to be converging to somewhat higher rates of price inflation, which is not what the theory predicts.

Artisanal funeral markets in everything

With an increasing demand among baby boomers for customized funerals that reflect the individuality of the deceased, funeral directors are expanding into the business of event production. Today’s funeral director might stage a memorial service featuring the release of butterflies at the grave site, or with the deceased’s Harley parked ceremonially at the entrance to the chapel. In such instances, the skills of a funeral director can seem to fall somewhere between those of a nurse and a wedding planner. Mortuary Management, a trade magazine, offers articles about such innovations as the tribute blanket—an instant heirloom that incorporates photographs of the deceased into a custom-made tapestry—and urges funeral directors to be open-minded when faced with families who want pop songs played at a service. It’s a profitable strategy to, as a feeble witticism of the industry has it, “put the fun back into funerals.”

There is more from here from Rebecca Mead.  I liked this exchange too:

“Who is going to follow a funeral home’s Twitter account, really?” one participant asked.

“Weirdos,” someone replied.

“Competitors,” added another.

Interesting throughout, as they say.

More from Robin Hanson on sexist pricing, which might just be sampling bias

I’d guess women actually do tend to have a higher taste for quality and variety within this category of [regular] products. But I still doubt that women have higher taste for quality and variety overall. Instead it seems to me that the sorts of products that can have similar male and female versions tend to be lower-quality less-varied more-commodity-like sorts of products.

Women could have a higher taste for quality among lower quality products, and still have the same overall taste for quality, if women have less tolerance for variation in quality across product categories. That is, men may be more willing to save via lower quality in some areas, in order to pay for higher quality in other areas. In contrast, women may seek a more consistent level of quality across many product categories. Women may be more afraid someone will judge them badly from one particular unusually low quality category, while men may hope someone will judge them well from one particular unusually high quality category. This theory fits with many other results suggesting that men are and seek higher variance, and have less conformity.

His post is here.

I would offer the following (speculative) generalization.  Guys are more likely to “just buy any usable sock,” whereas women are more likely to want “the right socks.”  Therefore socks for guys end up being cheaper, because male price elasticity is higher.

Yet guys are more likely to spend a lot to buy the most expensive stereo system, or the most expensive car, or make the biggest charitable donation.  There may not be coexisting “male” and “female” versions of these goods, as with pink vs. blue razors, but still the men pay big compared to the women.

The now-famous WaPo Danielle Paquette piece oversamples “regular goods” and undersamples the goods where males end up paying more.  Therefore it looks like women are getting ripped off, but in reality we don’t know the net effect.

Bryan Caplan had a hand in this lunch discussion too, I ordered halal fish and chips, Bryan let me take his extra spinach.

Were the Civil War and abolition a surprise?

More than I had thought.  And Lincoln really was the difference maker:

…prior to 1860, few political events seemed to affect slave prices, and even the Dred Scott decision had only a small and temporary effect. After Lincoln’s nomination for the presidency, slave prices fell, and they continued to fall once the war commenced. The overall decline in slave prices was large (more than one-third from their 1860 peak) and occurred prior to any battle losses by the South.

That is from the new AER piece by Calomiris and Pritchett.  There is an ungated version here (pdf).

New results on the minimum wage and inequality

There is a new paper in American Economic Journal: Applied Economics by David H. Autor, Alan Manning, and Christopher L. Smith, here is the abstract:

We reassess the effect of minimum wages on US earnings inequality using additional decades of data and an IV strategy that addresses potential biases in prior work. We find that the minimum wage reduces inequality in the lower tail of the wage distribution, though by substantially less than previous estimates, suggesting that rising lower tail inequality after 1980 primarily reflects underlying wage structure changes rather than an unmasking of latent inequality. These wage effects extend to percentiles where the minimum is nominally nonbinding, implying spillovers. We are unable to reject that these spillovers are due to reporting artifacts, however.

Here are earlier, ungated versions of the paper.  Overall my read of this is that many people are leaping in too quickly and making unsupported claims about how the minimum wage is connected to income inequality.

Wednesday assorted links

1. The infrastructure that is China, Stephon Marbury edition.

2. Price differences across gendered but otherwise highly similar toys.  On Twitter Robin Hanson wrote: “My guess: women more infer quality/status from price…An obvious other theory of higher prices for women: their products more varied, & so fixed costs are spread over fewer items.”

3. Has the time come for a Pigouvian state? (pdf)

4. The Drone Wars have shifted to the ski front.  And comet strikes too.

5. Neil Irwin on The Big Short.

6. Why is the author of The Revenant obsessed with trade disputes?

Markets in everything, tangled and untangled

Many knitters find their craft a tranquil and even meditative pastime—until knots and tangles in their yarn send them into a fury. But for one group of fanatics, there is nothing more satisfying than a hopelessly tangled web.

Daphne Basnet of Melbourne, Australia, once paid about $50 on eBay for a 25-pound box of snarled yarn, simply for the pleasure of untangling it. “I was so happy, I can’t tell you,” recalls the 58-year-old of her purchase, a mess of about 120 knotted balls.

…Finding such tangled treats got easier when Ms. Basnet joined Knot a Problem, a seven-year-old group of more than 2,100 “detanglers” on the online community for knitters and crocheters called Ravelry. Frustrated yarn-lovers from around the world post pleas for help undoing their knottiest knots, often created by children, pets or yarn-winding mishaps.

Devoted detanglers typically offer to take on the projects for the cost of shipping. Competition for the most maddening messes can be fierce. Some members check the group every day.

“People will jump in and say, ‘Send it to me!’ ” says Mary Enright, 56, a detangler from Sioux Falls, S.D.

Some of you may be saying “OK…” but I am more along the lines of “who am I to judge?”  And there is this:

Group members like to post before-and-after photos of what they call “tangle porn.” Heaps of yarn resembling bowls of spaghetti become neat balls and cakes. “I think it’s fulfilling for people when they see what it was, sort of like house remodeling,” says Ms. Rothschild. “You see how crappy it was and how beautiful it turned out to be.”

And if you are looking for further signs of dedication:

About a dozen hard-core members celebrated by sending each other yarn to untangle, knotting up new skeins themselves if they had to.

For the pointer to the article I thank Peter Metrinko.

Pigouvian leaf blowers with Coasian solutions

[James] Fallows supports the notion of a kind of trade-in program, where loud, old leaf blowers are exchanged for the less offensive kind.

Rueter, in fact, facilitated one such scheme. In the heat of his front lawn dispute with his neighbor, he offered a solution.

“If you agree to use them, I will buy you two new leaf blowers,” he told his neighbor. The offer was accepted and the noise level in his front yard was restored to a peaceful level. When it comes to the balancing act of protecting landscaping jobs while reducing noise and emissions, it helps that someone was willing to pay for progress.

The article is interesting throughout, and I thank the excellent Brian Slesinsky for the pointer.

Tuesday assorted links

*The Big Short*

I liked it much more than I expected to, and was pleased to have been invited to yesterday’s special screening.  (By the way, there are no real spoilers in this review.)  The most noteworthy features of this movie, from my admittedly skewed perspective, are these:

1. The story is told through the medium of changing market prices.  Really.  Reported prices convey the action and its significance, repeatedly, and the audience is expected to “get” this.

2. There is no central villain, none whatsoever.  The filmmakers succeed in showing how the collective actions of many, operating together, can give rise to structural problems and systemic risk.  And yet the story remains suspenseful.

3. It is amazing how much jargon they packed into this movie, let’s hope audiences accept it.  They even try to explain what a collateralized debt obligation is, and why its true risk can be higher than its apparent risk.

4. In terms of flow and pacing, it doesn’t feel like a traditional Hollywood movie.  There is no background music (except Led Zeppelin at the close), the density of information is much higher than expected, and it draws inspiration from various souped-up YouTube clips, some where characters occasionally turn and speak to the audience directly.

5. I enjoyed how this movie showed the world of finance as being a menagerie of different kinds and levels of intelligence.  My favorite scenes were at the CDO conference held in Las Vegas, showing the very specific ways in which people of above-average intelligence nonetheless can be intensely stupid.

6. Yes, the movie was “too leftie” on various points, or occasionally not nuanced enough, such as the SEC regulator scene.  But what the movie does well — namely to condense amazing amounts of economics and finance into what is likely to prove a popular and critically acclaimed film — is path breaking, and more important than its shortcomings.

By the way, the preview for this movie is misleading, for one thing Brad Pitt has only a minor role.  The preview is technically well done, but it makes the film look too mainstream.

Addendum: A recent movie I enjoyed on Netflix was Tangerine, which also has a unique feel to it, shot solely on iPhones.  But if you’re allergic to the idea of a movie about transgender prostitutes, skip it.  It’s one of the great LA movies, though.

Monday assorted links

1. Fed T-shirt markets in everything.

2. Is he the best dunker of all time? (NYT, text and video).  And if so, what does this imply for theories of specialization?

3. “Having sat on top of Texas for like 17 years now, I can tell you this is the most Texas thing ever!

4. The year in fungi.

5. “If anyone is trying to tell you it’s not complicated, be very, very suspicious,” said Tyler Cowen, an economist at George Mason University. “The inclination of economists is Occam’s razor. That’s a harmful tendency in today’s world.”  From Walter Frick on inequality at HBR.

6. Ross Douthat on Star Wars and decadence, full of spoilers.

7. Was Robert Johnson recorded at the wrong speed?

China disappeared fact of the day

Publishers of the China Minxin purchasing managers index said they will stop updating the gauge of manufacturing to make a “major adjustment” to their calculations, dealing a second setback in recent months to investors looking for an early read on the economy.

Release of the unofficial purchasing managers index jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics will be suspended starting this month, the Beijing-based academy said in an e-mailed statement Monday, about six hours before the latest monthly data were scheduled for release.

Six hours, I guess they found some big mistakes in the number really late.  The article is here.

For pointers I thank Christopher Balding and Chris Anstey.

Subsidies Increase Tuition, Part XIV

In a new NBER paper, Accounting for the Rise in College Tuition, Grey Gordon and Aaron Hedlund create a sophisticated model of the college market and find that a large fraction of the increase in tuition can be explained by increases in subsidies.

With all factors present, net tuition increases from $6,100 to $12,559. As column 4 demonstrates, the demand shocks— which consist mostly of changes in financial aid—account for the lion’s share of the higher tuition. Specifically, with demand shocks alone, equilibrium tuition rises by 102%, almost fully matching the 106% from the benchmark. By contrast, with all factors present except the demand shocks (column 7), net tuition only rises by 16%.

These results accord strongly with the Bennett hypothesis, which asserts that colleges respond to expansions of financial aid by increasing tuition.

Remarkably, so much of the subsidy is translated into higher tuition that enrollment doesn’t increase! What does happen is that students take on more debt, which many of them can’t pay.

In fact, the tuition response completely crowds out any additional enrollment that the financial aid expansion would otherwise induce, resulting instead in an enrollment decline from 33% to 27% in the new equilibrium with only demand shocks. Furthermore, the students who do enroll take out $6,876 in loans compared to $4,663 in the initial steady state….Lastly, the model predicts that demand shocks in isolation generate a surge in the default rate from 17% to 32%. Essentially, demand shocks lead to higher college costs and more debt, and in the absence of higher labor market returns, more loan default inevitably occurs.

Sound familiar? Some of these results appear too large to me and the authors caution that they need to assume a lot of monopoly power to solve their model so the results should be taken as an upper bound. Nevertheless, the Econ 101 insight that subsidies increase prices (even net for those who are not fully subsidized) holds true.

I wonder where else (& here) we could apply this insight?