Month: February 2017
Scott Sumner has a very good post on that question, noting that UK gdp growth has been robust and suggesting this refutes uncertainty-based theories of the business cycle. I see the matter somewhat differently, however. In standard real business cycle theory, a’la Long and Plosser, a business cycle is defined in terms of comovement and persistence. The real business cycle “victim” can either take a direct hit to wealth, or by various processes of smoothing and substitution, spread the hit out across various sectors and over time, thereby generating comovement and persistence and thus what we call a cycle. Taking the direct, concentrated hit isn’t a “cycle” but it still is very painful, in most simple versions of the model it is more painful than doing the smoothing.
Now fast forward to Brexit. There is no representative agent, and the shock “attacked” the UK economy in the form of an immediate exchange rate depreciation. That is a hit to wealth, concentrated on import purchases, though with a good deal of smoothing over time, because import purchases are themselves spread out. Presumably British consumers would prefer the price increases to be more evenly distributed, and not just over imports, but it is easy enough to cite reasons why, in heterogeneous agent models, that won’t happen so easily. Of course over time, some of this smoothing will occur, as the Brits reallocate domestic production to substitute for the now more-expensive foreign goods, pulling resources away from a broader variety of sectors.
None of this refutes real business cycle theory once you see that the non-cyclical immediate “hit” to wealth is an ever-present option. The results don’t look like a “cycle,” but they very much fit the overall framework. But the result is a mix of a super-rapid wealth adjustment, and a super-slow motion series of taxes on imports; I think Scott is a little too distracted by not seeing cyclical action at the usual intermediate frequency.
A while ago I estimated the costs of this “hit” at 5,625 pounds per capita, though since then the British pound has fallen even further, thereby raising those costs.
As for the uncertainty theories, I’m not sure the Brexit story is a good case study for them. At first I was uncertain as to whether it really would happen, but not very much any more. It doesn’t seem the market was ever that uncertain about the final results. A known but surprise event came, and the market knocked down British wealth, mostly bypassing the cycle.
The key point here is that the cycle is an artifact, not something that absolutely has to happen. The negative wealth effect is a more fundamental category, and we absolutely have seen one of those in Great Britain.
The puzzle here — and it is a very real one — is why economies sometimes get immediate hits to wealth, and no cycle, and other times they have to go through the wringer with an ongoing process of temporal decay. The answer lies in part with Britain’s nature as an open economy, and the total lack of stickiness in the exchange rate price, but I think there is also more to it than that…
That is the topic of my latest Bloomberg column, which I believe must be read as a whole. Nonetheless here is one brief excerpt, noting that the premise is the escape of bobcat Ollie from the National Zoo:
The saddest part of the Ollie saga is that, believe it or not, not everyone cares so much about freedom. Zoo officials had suggested that Ollie could live comfortably in Rock Creek Park and feed off a diet of mice, rats, chipmunks and squirrels. Our nation’s capital had a chance for its own D.B. Cooper, Butch Cassidy, Bigfoot and Jersey Devil, all rolled into one lovable feline persona, standoffish or not.
It was not to be, but not because a team of Navy SEALs hauled her in. Ollie, after a few reported sightings about town, returned to the zoo and was caught in a trap baited with food. She was found by the bird cages, shortly after the zoo reported it was giving up the search. It seems she is more of a homebody, preferring federal rule, federal housing and a heavily regulated diet to a tax-free life on the lam.
Do read the whole thing.
A new study by the Taub Center for Social Policy Studies in Israel finds a relationship between the longevity of men in Israel and army service, which contributes to Israeli men’s better physical fitness
- In 2013, the average life expectancy for men in Israel was 81 years, in contrast to the OECD average of 77.7 and a world average of 68.8 years.
- Considering other variables that influence longevity – including wealth and education levels, the health system and the country’s general demographic profile – the Israeli advantage is large and increasing.
- An analysis based on a sample of more than 130 countries found that military service added more than three years to male life expectancy.
- This conclusion is reinforced in data showing the differences in the average life expectancy of men and women in Israel and in the OECD. In the 34 OECD countries, women live an average of 5.5 years longer than men, but in Israel, where military service is shorter and in most cases less physically demanding for women, women’s life expectancy is only 3 years longer.
- While military service is an important component in public health, it has not yet been discussed in the academic literature on general health factors, nor has it been discussed in Israeli health literature.
I am very much against the draft outside of extreme military emergencies, but I suspect when the economic history of the American 20th century is written, the end of the draft will play some significant role in explaining the evolution of conditions for the deplorables.
For the pointer to this work I thank Rafi Bryl.
This might be something for your “markets in everything” series. Swiss (French) TV has uncovered that many orphans in Cambodian orphanages are actually not really orphans. These children are just their to meet the demand of altruistic Swiss to help poor Cambodian orphans. These Swiss actually pay to help a few weeks at an orphanage and to teach English or other things deemed useful (maybe so they can signal how altruistic they are to their friends).
Here’s the original TV report (French):
And here’s an article in a newspaper (German):
That is from an email by Luzius Meisser.
2. “Johnny Depp spent $3 million to blast Hunter Thompson’s ashes out of a cannon. He spent $18 million on an 150-foot yacht. He spent $4 million on a failed record label. He spent $30,000 a month on wine, $200,000 a month on private planes, $150,000 a month on round-the-clock security, and $300,000 a month to maintain a staff of 40 people.” Does Johnny Depp love markets or hate markets? Link here.
3. Inspired Media.
That is a recent paper by Lee Epstein and Eric A. Posner, and here is the abstract:
A statistical analysis of voting by Supreme Court justices from 1937-2014 provides evidence of a “loyalty effect” — justices more frequently vote for the government when the president who appointed them is in office than when subsequent presidents lead the government. This effect exists even when subsequent presidents are of the same party as the justices in question. However, the loyalty effect is much stronger for Democratic justices than for Republican justices. This may be because Republican presidents are more ideologically committed than Democratic justices are, leaving less room for demonstrations of loyalty.
You can read it here.
Tim Steiner has an elaborate tattoo on his back that was designed by a famous artist and sold to a German art collector. When Steiner dies his skin will be framed – until then he spends his life sitting in galleries with his shirt off.
“The work of art is on my back, I’m just the guy carrying it around,” says the 40-year-old former tattoo parlour manager from Zurich.
A decade ago, his then girlfriend met a Belgian artist called Wim Delvoye, who’d become well known for his controversial work tattooing pigs.
Delvoye told her he was looking for someone to agree to be a human canvas for a new work and asked if she knew anyone who might be interested.
…The work, entitled TIM, sold for 150,000 euros (£130,000) to German art collector Rik Reinking in 2008, with Steiner receiving one third of the sum.
“My skin belongs to Rik Reinking now,” he says. “My back is the canvas, I am the temporary frame.”
As part of the deal, when Steiner dies his back is to be skinned, and the skin framed permanently, taking up a place in Reinking’s personal art collection.
“Gruesome is relative,” Steiner says to those who find the idea macabre.
I submit that this question of Chinese immigration should be settled upon higher principles than those of a cold and selfish expediency.
There are such things in the world as human rights. They rest upon no conventional foundation, but are external, universal, and indestructible. Among these, is the right of locomotion; the right of migration; the right which belongs to no particular race, but belongs alike to all and to all alike. It is the right you assert by staying here, and your fathers asserted by coming here. It is this great right that I assert for the Chinese and Japanese, and for all other varieties of men equally with yourselves, now and forever. I know of no rights of race superior to the rights of humanity, and when there is a supposed conflict between human and national rights, it is safe to go to the side of humanity. I have great respect for the blue eyed and light haired races of America. They are a mighty people. In any struggle for the good things of this world they need have no fear. They have no need to doubt that they will get their full share.
But I reject the arrogant and scornful theory by which they would limit migratory rights, or any other essential human rights to themselves, and which would make them the owners of this great continent to the exclusion of all other races of men.
See also this earlier post by Ilya Somin.
What should I read about him and his administration? I thank you all in advance for your suggestions.
2. Increased ethnic diversity in government leads to lower levels of government spending, at least for California City Councils.
Volume 14, Issue 1, January 2017
Government Propaganda Watch: Three investigations of economic discourse and research issued by governments and government agencies:
- Propagandistic Research and the U.S. Department of Energy: Energy Efficiency in Ordinary Life and Renewables in Electricity Production, by Daniel Sutter
- Slip and Drift in Labor Statistics Since 2007, by Clifford Thies
- “Stop This Greed”: The Tax-Avoidance Political Campaign in the OECD and Australia, by Chris Berg and Sinclair Davidson
Econ 101 Morality: J. R. Clark and Dwight Lee tell teachers to embrace a moral purpose and to teach students where their instincts came from and why instincts often mislead.
Must moral judgment involve sympathy? Thomas Brown’s 1820 critique of Adam Smith.
Mitchell Langbert and coauthors rectify a coverage error in their study of faculty voter registration.
Signalling doesn’t really work IMO. Who is he signalling too? Other criminals? Customers? Why do they care? It seems if this is what it is the economy is deeply inefficient. 40% of the population needs 4 years of college to ‘signal’? So if there was some way to pick up this signal without college huge profits would await.
I suspect there’s two aspects that make college valuable:
1. Narrative creation – humans work by creating and sharing fictional narratives. College is a lot of practice at that which is a skill that carries over into business of many types.
2. Burns off immaturity. I suspect a big portion of the benefit of schooling is babysitting. It keeps kids out of the way of adults (which our economy couldn’t function otherwise…imagine if *every* day was take your kid to work day). By keeping immaturity somewhat walled off until kids grow out of it, schools prevent them from damaging their lives.
2.1 This may be somewhat related but workplaces are very, very stable. If you are changing tires at 18 there’s enough tires in the world that you can still be doing it at 59. Perhaps by starting work at a younger age, it is a bit too easy to fall into stability. School forces you to someday break things up. No matter how good you are at school you’re going to have to leave that stability upon graduation which will land you somewhere else which you’ll have to figure out. That flexibility may be more valuable than premature stability.
Authored by John Curtis Perry, this is a good one-volume introduction to the history of Singapore, with the most interesting section being the one on the Japanese wartime occupation. Here is one excerpt:
For the Indonesians, struggling against the Dutch, freedom from colonial rule did not satisfy; they wanted as well to redraw geographical lines of sovereignty. Their new leader, Sukarno, in 1961 announced an aggressive policy of Konfrontasi (Confrontation), dreaming of forming a vast united Malay state, “Maphilindo,” to include Indonesia, the Malayan Peninsula (and implicitly Singapore), all of Kalimantan, and even the Philippines.
Indonesia by size and population would naturally dominate such an aggregation. Sukarno vowed to use force to crush Malaysia calling it “neo-colonial.” His people seized Singaporean fishing boats; he ordered sabotage carried out on Singapore’s port and a boycott that hurt Singapore’s trade. These threats and acts did nothing to advance his cause but fanned Singapore’s sense of vulnerability.