Month: January 2016

How much of the Chinese growth slowdown is just about construction?

Andrew Batson thinks it is simpler than many people make it out to be:

…these analyses…fail to even mention the most straightforward and direct explanation of why China’s growth is much slower today than it was in say, 2010 or 2007. It’s not like it’s a secret. From about 2003 to about 2010 China had the biggest construction boom of modern times and probably in all of human history. Then in 2011-12 the construction boom ended. That’s it. Really, that’s all you need to know. Well, you might need one more fact: housing and construction account for as much of a third of China’s GDP, once all their indirect linkages to other sectors are considered. I think a housing downturn explains very well the timing, severity and distribution of the economic slowdown that has actually occurred.

Here is the full post, which also criticizes the idea of the middle income trap.  I would add two points, which may represent a deviation from Batson’s argument.  First, I don’t think the Chinese growth slowdown is as sudden as a culling of media reports might suggest.  Second, to the extent the contraction is sudden, it is perhaps Chinese investors have woken up to the idea of a risk premium, and realized there is no eternal ten or even seven percent growth to validate so-so quality investments.  The dynamics of information arrival can compress economic adjustments into “too short” a space, a common theme in business cycle theory and not an issue restricted to contemporary China.

Go Has Been Broken

Tic-tac-toe fell in 1952, checkers in 1994, chess in 1997 and it now looks like Go, the ancient Chinese game that has a search space many, many times greater than chess, has fallen to a new AI from Google.

Go…our program AlphaGo achieved a 99.8% winning rate against other Go programs, and defeated the human European Go champion by 5 games to 0. This is the first time that a computer program has defeated a human professional player in the full-sized game of Go, a feat previously thought to be at least a decade away.

Importantly, AlphaGo isn’t based primarily on searching a huge space but on deep neural networks that learned first from human players and then from simulated play with itself. The techniques, therefore, are not limited to Go.

AlphaGo will face its greatest challenge in March.

AlphaGo’s next challenge will be to play the top Go player in the world over the last decade, Lee Sedol. The match will take place this March in Seoul, South Korea.

Win or lose, I will bet that Lee Sedol is the last human champion the world will ever know.

*Illiberal Reformers*, on Progressives and eugenics

The subtitle of Thomas Leonard’s new and excellent book is the apt Race, Eugenics & American Economics in the Progressive Era.

I take it you all know by now this is quite an ugly story, namely that both early progressives and late 19th century American economists were often quite appalling racists and eugenicists, and that such racism was built into the professional structure of economics in a fairly fundamental way, including but not restricted to the American Economics Association.

Kevin Drum had an interesting point in response (and do read his full post, there is more to it than this quick excerpt):

Early 20th century progressives supported eugenics out of a belief that it would improve society. Contemporary liberals support abortion rights and right-to-die laws out of a belief in individual rights that flowered in the 60s.

Most of all Drum is saying that the earlier history is not very illustrative of anything for today.

I view it this way.  Go back to Millian liberalism of the mid-19th century.  Had American or for that matter British Progressivism been infused with more of this philosophy, the eugenics debacle never would have happened.  For instance if you look at the British Parliamentary debates of 1912 over the Mental Deficiency Bill, the anti-eugenics forces drew heavily upon Mill for their inspiration.  This was standard stuff, but the Progressives of the time didn’t see much of a pro-liberty reason for being pushed into a Millian position, quite the contrary.

The claim is not that current Progressives are evil or racist, but rather they still don’t have nearly enough Mill in their thought, and not nearly enough emphasis on individual liberty.  Their continuing choice of label seems to indicate they are not much bothered by that, or maybe not even fully aware of that.  They probably admire Mill’s more practical reform progressivism quite strongly, or would if they gave it more thought, but they don’t seem to relate to the broader philosophy of individual liberty as it surfaced in the philosophy of Mill and others.  That’s a big, big drawback and the longer history of Progressivism and eugenics is perhaps the simplest and most vivid way to illuminate the point.  This is one reason why the commitment of the current Left to free speech just isn’t very strong.

I don’t mean to pick on Kevin, who is one of my favorite bloggers, but I disagree (and find indicative) another one of his claims, namely:

…eugenics died an unmourned death nearly a century ago.

To give one (not the only) example to the contrary, Swedish “progressive” sterilization persisted through the 1970s, as was true for Canada as well.  Eugenicist views toward autistic people, among others, remain common across the political spectrum (no special brickbat for Progressives here, but they are guilty too), and with CRISPR a lot of eugenicist debates are already making a comeback.

Do we really want to identify with a general philosophy which embraced eugenics for so many decades, when so many pro-liberty and also social democratic thinkers were in opposition?  I think Mill himself would say no.


Duke Summer Institute on the History of Economics

From my inbox, from Bruce Caldwell:

The Center for the History of Political Economy at Duke University will be hosting another Summer Institute on the History of Economics this summer, May 29-June 17. The three week program is sponsored by the National Endowment for the Humanities and is designed primarily for faculty members in economics, other social sciences, and the humanities, though three of the twenty-five slots are reserved for graduate students. Participants will be competitively selected and successful applicants will receive a $2700 stipend for attending, out of which they will pay for their own room and board. Our line-up of discussion leaders is quite impressive, and includes Maria Pia Paganelli, Nicholas Phillipson (author of Adam Smith: An Enlightened Life), Bart Wilson, Duncan Foley, Tim Leonard, Angus Burgin, Eddie Nik-Khah, and Steve Medema. The deadline for applying is March 1. A special bonus for those who attend: the History of Economics Society meetings will be held at Duke from June 17-20. Attendees who wish to do so can stay over for the HES meetings. 

More information on the Summer Institute is available at our website,

Wednesday assorted links

Does Europe really have a better drinking culture for young people?

German Lopez at Vox reports:

If you look at the data, there’s no evidence to support the idea that Europe, in general, has a safer drinking culture than the US.

According to international data from the World Health Organization, European teens ages 15 to 19 tend to report greater levels of binge drinking than American teens.

This continues into adulthood. Total alcohol consumption per person is much higher in most of Europe. Drinkers in several European countries — including the UK, France, Belgium, Denmark, Sweden, and Iceland — are also more likely to report binge drinking than their US counterparts.

Younger teens in Europe appear to drink more, as well. David Jernigan, an alcohol policy expert at Johns Hopkins University, studied survey data, finding that 15- and 16-year-old Americans are less likely to report drinking and getting drunk in the past month than their counterparts in most European countries.

File under Wisdom of the Mormons.

IMPACT is Working

In Launching the Innovation Renaissance I wrote:

…teacher pay in the United States seems more like something from Soviet-era Russia than 21st century America. Wages for teachers are low, egalitarian and not based on performance. We pay phys ed teachers about the same as math teachers despite the fact that math teachers have greater opportunities elsewhere in the economy. As a result, we have lots of excellent phys ed teachers but not nearly enough excellent math teachers….

Soviet style pay practices helped to eventually collapse the Soviet system and the same thing is happening in American education. Michelle Rhee is no longer the DC Chancellor but IMPACT, the teacher evaluation system developed under her tenure, is in place. IMPACT uses student scores to evaluate teachers but also five yearly in-class evaluations, three from the school administrator and two from master educators from outside the school. Evaluations are meant not only to reward but also to discover and spread best teaching practices.

The results from IMPACT are starting to come in and they indicate that pay for performance is encouraging low quality teachers to leave, good quality teachers to get better, and high quality teachers to continue teaching and improve even further.

Perhaps not surprisingly the schools with the poorest students see the most teachers leave and they also see the largest gains in student performance as average teacher quality rises. From a new NBER paper by Adnot et al.:

More than 90 percent of the turnover of low-performing teachers occurs in high-poverty schools, where the proportion of exiting teachers who are low-performers is twice as high as in low-poverty schools.

…Our estimates indicate that there are consistently large gains from the exit of low-performing teachers in high-poverty schools. In math, teacher quality improves by 1.3 standard deviations and student achievement by 20 percent of a standard deviation; in reading these figures are 1 standard deviation of teacher quality and 14 percent of standard deviation of student achievement.

These are big effects especially when multiplied over many generations of students.

Hat tip: Eric Crampton at Offsetting Behaviour.

Larry Summers sounds pretty pessimistic here

…whoever you think the four most likely Americans to be the next president of the United States—who are probably Ted Cruz, Donald Trump, Bernie Sanders, and Hillary Clinton—none of them are in favor of TPP. That has to say something about the political—the political environment.

And this:

The Economist had a remarkable statistic. The IMF makes forecasts for every country every April. There have been 220 instances across several decades and some number of countries where growth was positive in year T and negative in year T+1. Of those 220 instances, the IMF predicted it in April in precisely zero of those 220 instances. So the fact that there’s a sense of complacency and relative comfort should give very little comfort.

The dialogue, with Richard N. Haass, is interesting throughout.  Haass seems to be too negative about India and Pakistan.

Autor, Dorn, and Hanson, on what we know about China

They have a new and excellent summary paper (pdf), and that is Gordon not Robin Hanson:

China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and lab or economists.

This is some of the most important work done by economists in the last twenty years.

I was too early in 2006

I wrote:

The yuan should not, as matters stand, float freely with free capital movements. Large quantities of Chinese savings, currently restricted to the domestic currency, would probably flee the country, worsening the serious solvency problems at Chinese banks. The Chinese must first clean up their banking system before they can have free capital markets. Contrary to the conventional wisdom, a market-determined value for the yuan might well be lower than today’s exchange rate, not higher.

Here is the rest of my 2006 column on China.

Facts about business travel

More populous countries have more business travel in both directions, but the volume is less than proportional to their population: a country with 100% more population than another has only about 70% more business travel. This suggests that there are economies of scale in running businesses that favor large countries.

By contrast, a country with a per capita income that is 100% higher than another receives 130% more business travelers and sends 170% more people abroad. This means that business travel tends to grow more than proportionally with the level of development.

While businesspeople travel in order to trade or invest, more than half of international business travel seems to be related to the management of foreign subsidiaries. The global economy is increasingly characterized by global firms, which need to deploy their know-how to their different locations around the world. The data show that there is almost twice the amount of travel from headquarters to subsidiaries as there is in the opposite direction. Exporters also travel twice as much as importers.

That is from Ricardo Hausmann, with further interesting points.