Month: October 2016
Does Diversity Reduce Freedom or Growth?
The founding father of Singapore, Lee Kuan Yew, credits ‘social discipline’ for the phenomenal economic rise of his country (Sen, 1999). Countries such as Singapore apparently demonstrate that autocratic measures are probably necessary, particularly in culturally fractionalized societies for creating the social stability necessary for economic growth (Colletta et al., 2001). Such thinking informs the so-called “Asian model” (Diamond, 2008).1 Recent studies, particularly in economics, support the logic (Alesina et al., 2006 and Easterly et al., 2006). According to these scholars, the more congruent territorial borders are with nationality, the better the chances for good economic policy to appear endogenously from within these societies because social cohesion determines good institutions and policies for development (Banerjee et al., 2005 and Easterly, 2006b). This paper addresses the question of whether or not social diversity hampers the adoption of sound economic policies, including institutions that promote property rights and the rule of law. We also examine whether democracy conditions diversity’s effect on sound economic management, defined as economic freedom, because the index of economic freedom is strongly associated with higher growth and is endorsed by proponents of the ‘diversity deficit’ argument (Easterly, 2006a).2
…Using several measures of diversity, we find that higher levels of ethno-linguistic and cultural fractionalization are conditioned positively on higher economic growth by an index of economic freedom, which is often heralded as a good measure of sound economic management. High diversity in turn is associated with higher levels of economic freedom. We do not find any evidence to suggest that high diversity hampers change towards greater economic freedom and institutions supporting liberal policies.
Paper here. The data is a panel from 116 countries covering 1980–2012 so this doesn’t rule out a negative long-run effect but it is prima facie evidence that diversity need not reduce freedom or growth.
Sunday assorted links
1. Ursula Le Guin profile. And Bob Dylan as Richard Wagner.
2. Tom Sietsema on the Michelin picks for D.C.
3. Maria Konnikova reviews Tim Harford at NYT.
4. Inaction markets in everything, age of television college football edition.
5. David Warsh on the Laureates.
6. If you could get everyone to read one book, what would it be? I find most of the listed answers strange, and overly specific, and dependent on the readers already knowing plenty of other books. Surely your selection needs to be a bestseller if indeed by “everyone” you mean everyone. I find The Bible, Krishnamurti’s Think on These Things, or even Jonathan Livingston Seagull, or perhaps a book about the enjoyment of sex, to be more plausible picks. Which book would you recommend?
I guess I was traveling when Congress took the vote on this one
The Americans are providing targeting intelligence and refueling Saudi warplanes involved in bombing rebel positions. But coalition strikes have also destroyed hospitals, markets and residential neighborhoods, killing large numbers of civilians.
Last Saturday, airstrikes by the Saudi-led coalition killed more than 100 people at a funeral in Sana, shown above. More than 10,000 people have been killed in the war, according to the United Nations, and the threat to civilians has increased since the collapse of peace talks in August.
After the Houthi rebels launched two failed missile attacks at an American warship in the Red Sea, another American vessel destroyed three radar installations in Yemen.
I do not know what is correct American policy in this conflict, but is it so wrong to have wished to have seen a Congressional vote and thereby Congressional accountability? Now that the conflict has heated up, will this be happening anytime soon? Is anything stopping the President from requesting it? Didn’t my whole Twitter feed just decide they want a President who respects the Constitution and the rule of law?
Here is the full story (NYT), short but useful and informative in any case.
Saturday assorted links
4. Is the House really on the line?
5. Wallonia blocks EU-Canada trade deal.
6. Sky Ladder is a splendid documentary, Netflix. It’s the story of Cai Guo-qiang, probably the world’s greatest active artist, and his quest to produce a truly amazing artistic display for his 100-year-old grandmother before she passes away. it is also one of the best movies about contemporary China, or for that matter art and politics.
Why did the U.S. unemployment rate fare better than gdp growth?
That is a new paper by Bob Hall (you must scroll down to get to the pdf), here is the abstract:
Answer: Between 2007 and 2014, GDP growth was held back by shortfalls of
4.4 percent in productivity
4.0 percent in capital input
3.6 percent in labor-force participation
2.2 percent in growth of the working-age population
Any further questions you might have?
There are other interesting macro papers at the link, and hat tip goes to Greg Mankiw.
Claims about Thailand
Another dimension of royal power is the monarchy’s vast financial holdings, estimated to be worth tens of billions of dollars. Principal among these is the Crown Property Bureau, which holds large amounts of land and has stakes in many big industries. The throne is also an important source of business patronage, including through the awards of royal warrants to companies. One past recipient was King Power, the duty-free business of Vichai Srivaddhanaprabha, owner of Leicester City, the English Premier League football champions.
That is from the Financial Times. Have any of you seen good analytical pieces on the future of Thailand, after the passing of the King? I believe their economy has more rot than is sometimes recognized.
Why announce your secret, unprecedented cyberstrike against Russia?
My Twitter feed is mocking the policy behind this news report, but of course it makes perfect sense. Here goes:
1. The United States wishes to have it be common knowledge that it can embarrass Putin. But in fact maybe it can’t! (At least not with a policy we are willing to bear the consequences of.) So why not threaten that you can? A truly secret strike probably would hurt him less than an embarrassment. So start investing in the embarrassment now.
2. If the U.S. does do something cyber against Russia, it may wish to signal in advance that it won’t be truly severe, so as to limit retaliation and lower the probability of ongoing escalation. Some public discussion can achieve this end. Truly devastating blows are in fact usually delivered in secret.
3. There is a chance that the U.S. can’t/won’t do much if anything against Russia at all. In that case third parties (Iran, China) may not know this for sure, and the announcement may have a slight deterrent value in their direction.
4. It may not be possible to understand the entire American strategy without knowing the private messages that are being sent to Putin at the same time. For instance, the overall strategy may be “announce a coming mild retaliation and privately threaten a more severe action.” Is that really so out of place? Probably not.
In other words, “announced secrets” sometimes can make perfect sense.
Department of Ho-Hum
Universe has two trillion more galaxies than previously thought.
Back to worrying about the election!
Friday assorted links
What I’ve Been Watching: Knox, Cage, Westworld
Amanda Knox on Netflix is a shorter version of Making a Murderer. Shorter because there isn’t much evidence that Knox had anything to do with the murder of her 
housemate. The documentary has extensive interviews with the lead investigator, a blowhard who likens himself to Sherlock Holmes but whose idea of deduction is that the murderer must have been a woman because the body was covered up. Surprisingly, the one clear sociopath isn’t the actual killer but the journalist whose lurid dispatches turned a tragic but ordinary murder into a witch hunt–a real Nightcrawler. Throw in some nationalism on both the Italian and U.S. sides and it’s not surprising that justice went awry. Trump has a cameo.
Luke Cage, also on Netflix, is the latest Marvel superhero story set in the same New York universe as Daredevil and Jessica Jones. Harlem is lovingly portrayed and the barbershop name dropping–Walter Mosley, Zora Neal Hurston, Crispus Attucks–and 
various basketball, jazz, and rap references adds color. The central conflict, however, is flat. Super-strong, well-nigh invulnerable Cage is not evenly-matched by drug dealer-businessman Cottonmouth. Despite a watchable performance by Mahershala Ali, Cottonmouth is no Kingpin. Vincent D’Onofrio’s Kingpin had Shakespearean intensity, depth, and the physical power to battle a super-hero. Indeed, one of the things that made Daredevil special was that you could see his exhaustion and pain in every battle. Similarly, Jessica Jones’s nemesis, Kilgrave, was one of the most horrific characters ever seen on television (in a great understated performance by David Tennant) and Kilgrave had Jones under his thumb for much of the season. Super heroes need super villains. To be sure, there is pickup in the second half of Luke Cage, but it takes a long time to develop.
Westworld (HBO)–this is the one that you must watch. The first two episodes have been remarkable. Every scene has something to see or to think about. Audience expectations are continually subverted. The cinematography is stunning.
One characters says “That’s what I love about this place all the secrets, all the little things I never noticed even after all these years. You know why this place beats the real world…in here every det
ail adds up to something.” Very meta. The shots also speak to the structure of the plot. Look at this amazing shot of the control building–levels of meaning.
It does not pass notice that it’s bright and shiny on top but the lower levels–the subconscious–are dark, moist, subterranean. We are told that WestWorld is a maze, a maze literally and figuratively, in our heads.
Westworld also challenges us with questions. Who are we? If we visited Westworld would we be the good guys or the bad guys? How many of us secretly harbor the desire to do evil and are restrained only by fear of punishment? What kind of Zimbardo experiment is Westworld?
Or are we the operators of Westworld who treat other people (?) as mere means and not as ends in themselves? Parts of Westworld look like an abattoir and from one perspective there are mass rapes.
Or are we the robots, living in a simulation, a reality of someone else’s construction? And what is going on with the corporation? The ultimate god?
The executive producer of Westworld is Jonathan Nolan, brother of Christopher, and writer or co-writer of Memento, The Prestige, The Dark Night and Interstellar.
We are only two episodes in but so far this is thrilling art in action.
The coach who never punts
In Little Rock, Arkansas, the Pulaski Academy Bruins play the game of football differently than you’ve ever seen before.
They don’t punt.
They onside kick every time.
And they always go for two.
Kevin Kelley, the architect of the system, studied years and years worth of data and implemented the system with absolute success. He’s won five state titles and has one of the best offenses in the entire country.
There is, sadly, a noisy video at the link, though it is easy to turn off. Whether you agree with this strategy or not, one of my core views is that we do not have enough experimentation of this kind. And I’m not just talking about football.
For the pointer I thank Peter Bach-y-Rita.
Wage stickiness in Italy is much weaker for the informal sector
We find that the wage differential between formal/regulated and informal/unregulated sectors increased after 2008. Moreover, while wages in the informal sector decreased by about 20% in 2008-13, wages in the formal sector virtually did not fall. This is consistent with the view of a substantial downward stickiness of wages in the regulated labour market. Importantly, before the recession, wages in the formal and informal sectors moved in parallel (with a 15% premium in the formal sector) – confirming the validity of the parallel trends assumption essential for our difference-in-differences methodology, and showing that both regulated and unregulated labour markets have a similar degree of upward flexibility of wages.
We also look at the employment changes in the two sectors. We find that in 2008-2013, employment in the formal labour market fell by 16%. At the same time, employment in the informal labour market did not vary – if anything, it increased slightly (by 1.6%), although the change is not statistically significant. This finding is fully consistent with the conventional narrative – the downward rigidity of formal wages result in formal workers losing jobs or moving to the informal sector.
That is from Sergei Guriev, Biagio Speciale, Michele Tuccio, more data and discussion at the link. I would note, however, that the formal and informal sector differ in ways other than just their degree of regulation. When labor contracts are truly short-term, and there is less morale-building in the enterprise, wages may be less sticky for non-legal reasons. And those are the firms most likely to end up in the informal sector. Still, there is an interesting and striking contrast.
Arbitrary power at the CFPB
That is the Consumer Financial Protection Bureau, part of Dodd-Frank. Here is the Wall Street Journal on the recent court decision to restrict the powers of the Bureau:
The panel’s decision limited the broad discretion granted the five-year-old Consumer Financial Protection Bureau in the name of tilting the balance of power from industry to small borrowers, calling it a “gross departure” from the checks and balances normally imposed on regulatory agencies.
…If it stands, the decision from the U.S. Court of Appeals for the District of Columbia would reduce the agency’s independence, empowering the White House to supervise the agency and remove its director, in contrast to the current arrangement where the director’s five-year term is intended to outlast a president’s.
…In Tuesday’s ruling by a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit, Judge Brett Kavanaugh, a George W. Bush appointee, wrote that Congress gave the CFPB director “more unilateral authority than any other officer in any of the three branches of the U.S. government, other than the president.” He said the problem of checks and balances was particularly acute because the CFPB “possesses enormous power over American business, American consumers and the overall U.S. economy.”
Megan McArdle offers comment. Here are remarks from Kevin Drum. I say the regulatory state already has too much arbitrary power, and this is a (small) move in the right direction.
Piketty, Housing, and Capital Share
Gianni La Cava has a very interesting article (based on a longer paper) on what accounts for the rising share of capital in the income accounts:
A key observation in Thomas Piketty’s Capital in the Twenty-First Century (Piketty 2014) is that the share of aggregate income accruing to capital in the US has been rising steadily in recent decades. The growing disparity between the income going to wage earners and capital owners has led to calls for government intervention. But for such interventions to be effective, it is important to ask who the capital owners are.
Recent research has shown that the long-run rise in the net capital income share is mainly due to the housing sector (e.g. Rognlie 2015, Torrini 2016 – see Figure 1). This phenomenon is not specific to the US but has been evident in almost every advanced economy. This suggests that it is not entrepreneurs and venture capitalists that are taking an increasing share of the economy, but land owners.
…The decomposition of the national accounts by type of housing indicates that the secular rise is mainly due to a rising share of imputed rent going to owner-occupiers. The owner-occupier share of aggregate income has risen from just under 2% in 1950 to close to 5% in 2014 (top panel of Figure 2). The share of income going to landlords (i.e. market rent) has also doubled in the post-war era. But, in aggregate, the effect of imputed rent is larger simply because there are nearly twice as many home owners as renters in the US economy. A similar phenomenon is observed in the personal consumption expenditure data (bottom panel of Figure 2). In other words, today’s landed gentry are predominantly home owners, not private landlords.
…The geographic decomposition reveals that the long-run rise in the housing capital income share is fully concentrated in states that face housing supply constraints. To see this, I divide the states into ‘elastic’ and ‘inelastic’ groups based on whether the state is above or below the median housing supply elasticity index (as measured by Saiz 2010). This index captures both geographical and regulatory constraints on home building across different US regions. For 50 years, the share of total housing capital income going to the supply-elastic states has been unchanged at about 3% of GDP (Figure 3). In contrast, the share going to the supply-inelastic states has risen from around 5% in the 1960s to 7% of GDP more recently. Notably, these divergent trends in housing capital income are not due to a few ‘outlier’ states where housing supply is particularly constrained, such as New York or California – instead, there is a clear negative correlation between the long-run growth in housing capital income and the extent to which housing supply is constrained across all states (Figure 4).
Thursday assorted links
1. David Beckworth podcast with Claudio Borio. And Stuart Warner interviews Peter Thiel.
2. Cass Sunstein picks five books to represent conservative thought.
3. Baby elephant topology problems (very short video).
4. What Beirut did wrong with its rebuilding.
5. Neoliberal Daniel Davies on passporting of financial services.