Month: October 2017

Is information technology behind industry concentration?

That is the topic of a new paper by James E. Bessen, and it appears the answer is yes:

Industry concentration has been rising in the US since 1980. Why? This paper explores the role of proprietary information technology systems (IT), which could increase industry concentration by raising the productivity of top firms relative to others. Using instrumental variable estimates, this paper finds that industry IT system use is strongly associated with the level and growth of industry concentration. The paper also finds that IT system use is associated with greater plant size, greater labor productivity, and greater operating margins for the top four firms in each industry compared to the rest. Successful IT systems appear to play a major role in the recent increases in industry concentration and in profit margins, moreso than a general decline in competition.

I expect further work in this area.

What does democracy call for in Catalonia?

Hoping for a peaceful democratic process in Catalonia tomorrow. When democracy fails there’s only repression. Thinking of my Catalan friends

That is a tweet from Pete Wishart, Scottish MP; I ‘ve seen dozens more like it.  But is it the democratic process behind the Catalonian referendum?  Or is it rather a form of electoral terrorism?  Here are a few points:

1. Most countries we consider to be democracies have rather stringent restrictions on when referenda may be held and what they may be used to decide.

2. According to extant reports, only 40 percent or so of the people in Catalonia favor independence.  It’s not like Kurdistan where independence won almost 100 percent of the vote and not only because of selective participation.

3. Aren’t non-official referendum results always going to be slanted in favor of intense minority opinion?  That hardly seems democratic.  See #2.  Arguably the same is true for official referenda as well, though then at least turnout is more representative.  Nonetheless referenda on such big questions may under-represent the interests of the young or the interests of business (and in turn real wages), or they may favor expressive voting too much.

4. Isn’t the truly democratic procedure to let all of Spain vote on Catalonian independence?  Maybe you don’t think so, but that begs the question.

5. Is it a fundamental democratic principle that any geographic region can demand a binding separatist referendum?  Well, maybe, but it sounds closer to John C. Calhoun than the notions of democracy I am familiar with or would favor.

Overall, I don’t see any positive news in how this is developing.  Arguably the situation remains in flux, but still the word is that a unilateral declaration of independence will be forthcoming.

The Productivity Slowdown and the Declining Labor Share

That is the title of a new NBER paper from Gene M. Grossman, Elhanan Helpman, Ezra Oberfield, and Thomas Sampson.  It is a very simple hypothesis, but they do show it can explain much of the observed decline in labor’s share:

We explore the possibility that a global productivity slowdown is responsible for the widespread decline in the labor share of national income. In a neoclassical growth model with endogenous human capital accumulation a la Ben Porath (1967) and capital-skill complementarity a la Grossman et al. (2017), the steady-state labor share is positively correlated with the rates of capital-augmenting and labor-augmenting technological progress. We calibrate the key parameters describing the balanced growth path to U.S. data for the early postwar period and find that a one percentage point slowdown in the growth rate of per capita income can account for between one half and all of the observed decline in the U.S. labor share.

In other words, the decreased bargaining power of labor, or for that matter globalization, are not necessarily playing major roles.  Here is yet another (ungated) version of the paper.

The economic cost of contact sports

By Ray C. Fair and Christopher Champa (pdf), here is the abstract:

Injury rates in twelve U.S. men’s collegiate sports are examined in this paper. The twelve sports ranked by overall injury rate are wrestling, football, ice hockey, soccer, basketball, lacrosse, tennis, baseball, indoor track, cross country, outdoor track, and swimming. The first six sports will be called “contact” sports, and the next five will be called “non-contact.” Swimming is treated separately because it has many fewer injuries. Injury rates in the contact sports are considerably higher than they are in the non-contact sports and they are on average more severe. Estimates are presented of the injury savings that would result if the contact sports were changed to have injury rates similar to the rates in the non-contact sports. The estimated savings are 49,600 fewer injuries per year and 5,990 fewer injury years per year. The estimated dollar value of these savings is between about 0.5 and 1.5 billion per year. About half of this is from football. Section 7 speculates on how the contact sports might be changed to have their injury rates be similar to those in the non-contact sports.

Here is NYT coverage of the piece, and an excerpt:

When he goes to Stanford football games, he [Roger Noll] said, one of the things he notices is the television production people on the sideline walking around with parabolic microphones.

“I’ve asked them why they do that,” he said. “They are catering to their audience. The audience wants to hear heads crack.”

A bit like how they soup up Planet Earth II with all kinds of phony noises for the animal movement.

The new issue of Econ Journal Watch

Volume 14, Issue 3, September 2017 

Twitter Mood Predicts the Stock Market? Johan Bollen, Huina Mao, and Xiaojun Zeng claimed the affirmative in a conspicuous 2011 article. Michael Lachanski and Steven Pav conclude otherwise after looking from many angles, replicating as best they can, and applying robustness tests. 

Who Knows What Willingness to Pay Lurks in the Hearts of Men? John Whitehead argues that certain authors claim to know, based on their survey data, more than they do about people’s willingness to pay for a wetlands project. The article continues an exchange from the Journal of Environmental Economics and Management. 

Fire and Ice: Hannes Gissurarson, who published an article on Iceland in our last issue, picks up the story in 1991, now turning critic of certain narratives about the last quarter-century. A principal opponent, Stefán Ólafsson, provides a reply that criticizes Gissurarson’s interpretations and his characterization of liberalism. 

What Adam Smith Told His Teenagers About Domestic Policy: Adam Smith’s jurisprudence course included a section on “police,” or domestic policy, captured in student lecture notes. The notes from 1763­­–1764 enrich our conversation today about Smith’s sensibilities, as they provide a candid window on his classroom edification. 

Glimpses of David Hume: “You hope I shall be damned for want of faith, and I fear you will have the same fate for want of charity.” Anecdotes and miscellanea about David Hume, most drawn from James Fieser’s 10-volume compilation Early Responses to Hume. 

An Economic Dream—of Erik Gustaf Geijer, historic Swede, and historian, published in 1847. “It is a dream of national economy…”

EJW Audio

Evan Osborne on Liberalism in China

Jeffrey Rogers Hummel on Kenneth Rogoff’s The Curse of Cash