Month: May 2016

Singapore (India) fact of the day

…it [Singapore] draws more travelers than countries such as India, Indonesia and Philippines.


Here is the story.

I sometimes say that large, populous places mostly will get better, so visit them later.  Small countries, islands, and regions will become worse to visit, losing their ethos to massive crowds, so see them now before it is too late.

The small Singapore, with its weird mix of hyper-modernity and charming retro, is an exception to this rule.  It may well be more interesting to visit ten years from now, by extending its modernity, even if it loses more of its retro.  But you cannot say the same about Bali, Tahiti, or Split, Croatia.  Amsterdam already has been ruined, more or less, by the crowds, Venice too during many times of the year.

Twenty years from now, Java, India, and Nigeria will be splendid to visit.  They will be easier to deal with, but won’t have lost much of their style and flair.  Sheer numbers locks that in.  So some of you should just wait.  That said, if you follow my advice and visit the small units now, you only make this problem worse.

Soviet Union (China) fact of the day

In its first three decades, the Soviet Union urbanized at about the same rate as China since 1978.

That is from Arthur Kroeber, China’s Economy: What Everyone Needs to Know, a new and useful introductory guide to what the title suggests.  This parallel of course is one reason why the early years of Soviet communism went as well economically as they did.

Trump voters are fairly well off

Trump voters’ median income exceeded the overall statewide median in all 23 states, sometimes narrowly (as in New Hampshire or Missouri) but sometimes substantially. In Florida, for instance, the median household income for Trump voters was about $70,000, compared with $48,000 for the state as a whole. The differences are usually larger in states with substantial non-white populations, as black and Hispanic voters are overwhelmingly Democratic and tend to have lower incomes. In South Carolina, for example, the median Trump supporter had a household income of $72,000, while the median for Clinton supporters was $39,000.


However, while Republican turnout has considerably increased overall from four years ago, there’s no sign of a particularly heavy turnout among “working-class” or lower-income Republicans. On average in states where exit polls were conducted both this year and in the Republican campaign four years ago, 29 percent of GOP voters have had household incomes below $50,000 this year, compared with 31 percent in 2012.

About 44 percent of Trump supporters have a college degree, compared to 29 percent for the nation as a whole.

That is from Nate Silver, by the way here is my conversation with Nate, transcript, audio, and video at the link.

To what extent are business cycles just random?

Let’s ask Guido Menzio, who perhaps knows something about random.  Here is one of his papers, with Mikhail Golosov (pdf):

We propose a new business cycle theory. Firms need to randomize over firing or keeping workers who have performed poorly in the past, in order to give them an ex-ante incentive to exert effort. Firms have an incentive to coordinate the outcome of their randomizations, as coordination allows them to load the firing probability on states of the world in which it is costlier for workers to become unemployed and, hence, allows them to reduce overall agency costs. In the unique equilibrium, firms use a sunspot to coordinate the randomization outcomes and the economy experiences endogenous and stochastic aggregate fluctuations.

In other words, by coordinating with each other, if only implicitly, employers make the firing threat more fearful.  You don’t have to interpret this paper literally as an entire explanation for cyclical unemployment, only that it may have something to do with the story.

And here is his about to appear JPE piece with Greg Kaplan (pdf):

We propose a novel theory of self-fulfilling unemployment fluctuations. When a firm increases its workforce, it increases the demand facing other firms—as employed workers spend more than unemployed workers—and decreases the extent of competition facing other firms—as employed workers have less time to search for low prices than unemployed workers. In turn, the increase in demand and the decline in competition induces other firms to hire more labor in order to scale-up their presence in the product market. The feedback between employment and product market conditions generates multiple equilibria—and the possibility of self-fulfilling fluctuations—if the differences in the shopping behavior of employed and unemployed workers are large enough. Empirical evidence on spending, shopping and prices paid suggests that this is the case.

In general, not enough popular macro discourse asks the question of how much of the cycle results from self-fulfilling prophecies.  Furthermore what does that imply for policy? yes, “confidence” can be important, but confidence in what exactly?

Discrimination by party is rising in import

A study published in The American Journal of Political Science underscored how powerful political bias can be. In an experiment, Democrats and Republicans were asked to choose a scholarship winner from among (fictitious) finalists, with the experiment tweaked so that applicants sometimes included the president of the Democratic or Republican club, while varying the credentials and race of each. Four-fifths of Democrats and Republicans alike chose a student of their own party to win a scholarship, and discrimination against people of the other party was much greater than discrimination based on race.

That is from Nicholas Kristof, there is more at the link (NYT).

Saturday assorted links

Me at the Milken Institute panel “Does capitalism need saving?”

The idea of a general confusion about the nature of capitalism and what its alternatives really look like was revisited later on by Tyler Cowen.

“I would focus most of all on the issue of ideas,” he said. “Do the people of this country still believe in capitalism? And I know that if you listen to Bernie Sanders, or look at some polls, a lot of young people have more sympathy for what they call ‘socialism’ than ever before, but I don’t think they mean real socialism. If you ask Americans questions such as ‘Do you support trade?’ the answers are more positive today than they were five years ago. …So if you look at a lot of basic issues of tolerance, belief in the system, people accepting consumerism, heralding innovation, I think, mostly, people here believe in capitalism.

Here is the full report, also including John Taylor and Alan Krueger and others.  Here is Fortune’s take on me on Trump and Sanders.  They caught me on an optimistic day.  Here is the video link for the whole session.

If you’re ever invited to the Milken Institute Los Angeles conference, I recommend it highly.  They have about the highest quality presentations and presenters I can recall hearing in a long time, maybe ever.  One reason for this is simply that they do not let people go on for too long.

John Cochrane on the safe asset shortage

I gave some comments on “Global Imbalances and Currency Wars at the ZLB,” by Ricardo J. Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas at the conference, “International Monetary Stability: Past, Present and Future”, Hoover Institution, May 5 2016. My comments are here, the paper is here

The paper is a very clever and detailed model of “Global Imbalances,” “Safe asset shortages” and the zero bound. A country’s inability to “produce safe assets” spills, at the zero bound, across to output fluctuations around the world. I disagree with just about everything, and outline an alternative world view.

A quick overview:

Why are interest rates so low? Pierre-Olivier & Co.: countries can’t  “produce safe stores of value”
This is entirely a financial friction. Real investment opportunities are unchanged. Economies can’t “produce” enough pieces of paper. Me: Productivity is low, so marginal product of capital is low.

Why is growth so low? Pierre-Olivier: The Zero Lower Bound is a “tipping point.” Above the ZLB, things are fine. Below ZLB, the extra saving from above drives output gaps. It’s all gaps, demand. Me: Productivity is low, interest rates are low, so output and output growth are low.

Data: I Don’t see a big change in dynamics at and before the ZLB. If anything, things are more stable now that central banks are stuck at zero. Too slow, but stable.  Gaps and unemployment are down. It’s not “demand” anymore.

Exchange rates. Pierre-Olivier  “indeterminacy when at the ZLB” induces extra volatility. Central banks can try to “coordinate expectations.” Me: FTPL gives determinacy, but volatility in exchange rates. There is no big difference at the ZLB.

Safe asset Shortages. Pierre-Olivier: driven by a large mass of infinitely risk averse agents. Risk premia are therefore just as high as in the crisis. Me: Risk premia seem low. And doesn’t everyone complain about “reach for yield” and low risk premia?

Observation. These ingredients are plausible about fall 2008. But that’s nearly 8 years ago! At some point we have to get past financial crisis theory to not-enough-growth theory.

I agree, here is the rest.

Economist Removed from Plane for Algebra

Guido Menzio an economist at the University of Pennsylvania–author of Block Recursive Equilibria for Stochastic Models of Search on the Job among other papers–was pulled from a plane because…algebra is suspicious. From FB:


Flight from Philly to Syracuse goes out on the tarmac, ready to take off. The passenger sitting next to me calls the stewardess, passes her a note. The stewardess comes back asks her if she is comfortable taking off, or she is too sick. We wait more. We go back to the gate. The passenger exits. We wait more. The pilot comes to me and asks me out of the plane. There I am met by some FBI looking man-in-black. They ask me about my neighbor. I tell them I noticed nothing strange. They tell me she thought I was a terrorist because I was writing strange things on a pad of paper. I laugh. I bring them back to the plane. I showed them my math.

It’s a bit funny. It’s a bit worrisome. The lady just looked at me, looked at my writing of mysterious formulae, and concluded I was up to no good. Because of that an entire flight was delayed by 1.5 hours.

Trump’s America is already here. It’s not yet in power though. Personally, I will fight back.

Algebra, of course, does have Arabic origins plus math is used to make bombs.

Addendum: here is the Washington Post on the story.

Friday assorted links

1. A new and significantly revised edition of Ilya Somin’s Democracy and Political Ignorance: Why Smaller Government is Smarter, is coming out in June.

2. Philip Wallach: Farewell to the Administrative State?

3. 1970s spoof of Star Wars, done by the Osmonds, ultimately pointing forward to Return of the Jedi.

4. More is more, and the paradox of choice is not robust.  Alternatively, just ask Jeff Bezos.  I enjoyed this sentence, but it is a bit absurd that it is needed: “”This research suggests that stores should be mindful of offering too few options,” Mochon said.”

5. In 1999 Donald Trump proposed a massive wealth tax on the rich: “The plan I am proposing today does not involve smoke and mirrors, phony numbers, financial gimmicks, or the usual economic chicanery you usually find in Disneyland-on-the-Potomac,” Trump said.

6. “Hudson Yards [NYC] will be the nation’s first ‘quantified community,’ a testing ground for applied urban data science.

Obama Joke Becomes Trump Talking Point

President Obama telling what I thought was a joke at the White House Correspondents Dinner:

They say Donald lacks the foreign policy experience to be president. But in fairness, he has spent years meeting with leaders from around the world: Miss Sweden, Miss Argentina, Miss Azerbaijan.

Apparently Donald was listening because yesterday in an interview with Bret Baier he made exactly the same point but this time as argument:

Bret Baier: About Russia, you were asked yesterday if you’ve ever spoken to Vladmir Putin. And you said, “I don’t want to say”:

Donald Trump: Yeah, I have no comment on that. No comment…I was in Russia….I know Russia well. I had a major event in Russia two or three years ago. Miss Universe contest which was a big, big, incredible event. Incredible success. I got to meet a lot of people….

Is Mexico’s soda tax really working?

It is commonly held up as a model of dietary paternalism, but the most recent trends suggest a reversal of sorts:

Coca-Cola Femsa SAB, the country’s largest Coke bottler, said last Wednesday that its Mexican soda volumes rose 5.5% in the first quarter from a year earlier. Arca Continental SAB, the No. 2 Coke bottler, reported soda volumes surged 11%.

The turnaround began last year, when Mexican soda-industry volume rose 0.5% after falling 1.9% in 2014, said data service Canadean.

Consumers also aren’t flocking to untaxed zero-calorie sodas. The market shares of full-calorie Coca-Cola and Pepsi-Cola inched higher last year to 48% and 11%, respectively, according to Euromonitor, another data service.

Antisoda groups aren’t ready to declare the tax a failure and say sales got a boost from unusually warm weather.

And note this:

Even the initial downturn [in soda consumption] only lowered the average Mexican’s daily caloric intake by 6 to 7 calories, or 0.2%, according to the study.

I do not think the correct conclusion is “Mexico’s soda tax is failing,” rather “it can take a very long time to discover whether or not policies are working well.”  For instance the tax may be step one in a longer-run beneficial shift in norms, or going the other way the tax may end up as irrelevant or possibly even counterproductive, if individuals end up substituting into something even less healthy.  This point about the long run is relevant for assessing the ACA, minimum wage hikes, the euro, various tax cuts, financial regulation, and many many other policies.  Relative price effects, secondary consequences, and “chances” of gaming the system are all much higher in the long run than the short.

Are pressures for conformity biased toward the norms of higher income groups?

Only a shred of evidence, but a shred nonetheless:

Kurt Gray, a co-author at the University of North Carolina at Chapel Hill, and his colleagues investigated thousands of shoe purchases made by women who move to different cities, showing that women adopt the local trends when moving to wealthier cities but ignore them when moving to lower socioeconomic (SES) cities.

“In other words, women want to look like the rich girls, and different from the poor girls,” said Gray, an assistant professor of psychology in UNC College of Arts and Sciences.

…Because fashion choices are hard to quantify, they used a straightforward number: the size of high heels [for luxury purchases].

Source here, paper here.  Perhaps this eventually becomes a theory of fashion cycles, if the rich women feel, after a while, that too many other women are copying them.  By the way, the researchers seem to believe that comparable mechanisms apply to men too, albeit not for high heels necessarily.

For the pointer I thank Charles Klingman and also Samir Varma.