Month: October 2017

How effective is media censorship in China?

by  Tyler Cowen in

Here is a new and very important paper by Yuyu Chen and David Y. Yang (and note how they named the link):

Media censorship is a hallmark of authoritarian regimes. We conduct a field experiment in China to examine whether providing access to an uncensored Internet leads citizens to acquire politically sensitive information, and whether they are affected by the information. We track subjects’ media consumption, beliefs regarding the media, economic beliefs, political attitudes, and behaviors over 18 months. We find 4 main results: (i) free access alone does not induce subjects to acquire politically sensitive information; (ii) temporary encouragement leads to a persistent increase in acquisition, indicating that demand is not permanently low; (iii) acquisition brings broad, substantial, and persistent changes to knowledge, beliefs, attitudes, and intended behaviors; and (iv) social transmission of information is statistically significant but small in magnitude. We calibrate a simple model to show that, due to the low demand for, and moderate social transmission of, uncensored information, China’s censorship apparatus may remain robust for a large number of citizens receiving unencouraged access to an uncensored Internet.

Those results are fully consistent with my own anecdotal observations.

How foxes guard

by  Tyler Cowen in

If Whitehouse had chosen to pursue a complaint against the senator, she would have discovered a process unlike other parts of the federal government or much of the private sector. Her complaint likely would have been thrown out because interns have limited harassment protections under the unique employment law that Congress applies to itself.

Congress makes its own rules about the handling of sexual complaints against members and staff, passing laws exempting it from practices that apply to other employers.

The result is a culture in which some lawmakers suspect harassment is rampant. Yet victims are unlikely to come forward, according to attorneys who represent them.

Under a law in place since 1995, accusers may file lawsuits only if they first agree to go through months of counseling and mediation. A special congressional office is charged with trying to resolve the cases out of court.

When settlements do occur, members do not pay them from their own office funds, a requirement in other federal agencies. Instead, the confidential payments come out of a special U.S. Treasury fund.

That is from Michelle Ye Hee Lee and Elise Viebeck at The Washington Post.

On safari in Trump’s America

by  Tyler Cowen in

I very much enjoyed this Molly Ball piece.

…three days into their safari in flyover country, the researchers were hearing some things that disturbed them greatly—sentiments that threatened their beliefs to the very core…

“You’ve got all these parasites making a living off the bureaucracy,” the farmer declared, “like leeches pulling you down, bleeding you dry.” We had been in the state for just a few hours, and already the researchers’ quest for mutual understanding seemed to be hitting a snag.

Others in the group, a bunch of proudly curmudgeonly older white men, identified other culprits. There were plenty of jobs, a local elected official and business owner said. But today’s young people were too lazy or drug-addled to do them.

As we proceeded to meetings with diverse groups of community representatives, this sort of blame-casting was a common refrain. Disdain for the young, in particular, was a constant, across demographic, socio-economic, and generational lines: Even young people complained about young people. “They don’t want to do the work, and they always feel like they’re being picked on,” a recent graduate of a technical school in Chippewa Falls said of his fellow Millennials.

Some of the people we met expressed the conservative-leaning view that changes in society and the family were to blame. One, a technical-skills instructor at the Chippewa Falls school, questioned whether women belonged in the workplace at all. “That idea of both family members working, it’s a social experiment that I don’t know if it quite works,” he said. “If everyone’s working, who is making sure the children are raised right?”

There is much more at the link, but no final meeting of the minds.

Has Industry Concentration Increased Price and Restricted Output?

by  Tyler Cowen in

That is part of the title of a new paper by Sharat Ganapati, here is the abstract:

American industries have grown more concentrated over the last few decades, driven primarily by the growth of the very largest firms. Classical economics implies that this should lead to hikes in prices, reduction in output, and decreases in consumer welfare. I investigate forty years of data from 1972-2012 using publicly available market shares and price indices for both the manufacturing and non-manufacturing sectors and find mixed evidence. Manufacturing concentration increases are indeed correlated with slightly higher prices, but not lower output. However concentration increases are correlated with increases in productivity, offsetting a large portion of the price increase. In contrast, non-manufacturing concentration increases over the last twenty years are not correlated with observable price changes, but are correlated with increases in output.

In other words, the output restrictions are not there.  The amazing thing is that, over the last few years, I have seen a few dozen journalists and also economists handle this question, without ever asking much less trying to answer this question (Noah Smith being an exception).

Are Humans Increasing the Number of Species?

by  Alex Tabarrok in

After decades of researching the impact that humans are having on animal and plant species around the world, Chris Thomas has a simple message: Cheer up. Yes, we’ve wiped out woolly mammoths and ground sloths, and are finishing off black rhinos and Siberian tigers, but the doom is not all gloom. Myriad species, thanks in large part to humans who inadvertently transport them around the world, have blossomed in new regions, mated with like species and formed new hybrids that have themselves gone forth and prospered. We’re talking mammals, birds, trees, insects, microbes—all your flora and fauna. “Virtually all countries and islands in the world have experienced substantial increases in the numbers of species that can be found in and on them,” writes Thomas in his new book, Inheritors of the Earth: How Nature Is Thriving in an Age of Extinction.

That is the introduction to a very interesting interview with Chris Thomas, a conservation biologist. Read the whole thing.

Hat tip: The Browser.

“your thoughts on replacing income and consumption taxes by a wealth tax?”

by  Tyler Cowen in

That is another reader request.  I would emphasize the following points:

1. A property tax already is a wealth tax.  This form of taxation works fine, although as much as possible value taxes on land should be replaced by taxes on the unimproved value of land, for the reasons suggested by Henry George.  California in particular should tax land more and income less.  Read Noah Smith on this.

2. The actual impact of capital gains taxes is complicated, but in practice they often act as wealth taxes, especially if they are not indexed for inflation.  The next time the Democrats hold all branches of government, they are likely to try to raise these tax rates to an excessive level.

3. The French try to tax wealth per se, and that is a big reason why so many French people have ended up in London.  People hate this, feeling they’ve already “given at the office.”  A higher and more progressive income or consumption tax, if needed, usually is better than a wealth tax.  The wealth tax hurts savings and investment to a disproportionate degree, plus it makes all property rights insecure.  You never know when your earnings are safe from further taxation.

4. Taxing wealth is another way of running a higher implicit government deficit, and this is dangerous.

So #1 aside, overall I am not crazy about wealth taxes.  Compare them to sovereign wealth funds.  You may or may not like SWFs, but at least the government is then trying to augment wealth rather than take away from it.

Why were libertarians wrong about school vouchers?

by  Tyler Cowen in

Here is Megan on that topic, I agree with much or maybe all of what she says, namely that parents are seeking quality peers for their kids rather than school effectiveness per se.  But I’d like to add another, neglected factor.

If you look at the benefits of opening up international trade, it’s now well-known that the decrease in deadweight loss may be fairly small, but the gains from “putting under” inefficient firms can be large.  You are winning rectangles instead of small triangles, and in the longer run innovation spreads more widely and prices can fall with higher overall productivity levels.

OK, so now consider schools.  Vouchers typically are applied to pre-existing schools, and often in a fairly limited geographic area, such as a single city.  Those schools already had a stable place in the market, and now the demand for their product goes up.  The experiments typically are designed so that no public school goes under.

So, post-vouchers, no schools go under, including no low productivity schools.  Thus the efficiency gains from vouchers of this kind can be quite small, possibly zero.

Of course you can debate whether we should ever let K-12 schools fail, or under what terms.  But the general principle remains that markets are most potent when exit is an available and indeed exercised option.

It seems they will ban foreigners from buying homes in New Zealand

by  Tyler Cowen in

Foreigners are set to be banned from buying houses in New Zealand as part of a phase of new policies outlined by Prime Minister-elect Jacinda Ardern.

The 37-year-old, who was elected as part of a coalition government on 23 September, said the new plan was designed to stop rising house prices and will apply to non-residents.

‘We have agreed on banning the purchase of existing homes by foreign buyers,” said Ms Ardern, according to AFP.

Here is the full story.  Will the Kiwis be returning to their mercantilism of the 1970s?  She also wants to renegotiate TPP.  And here is the immigration update.

The Great Moderation Never Ended

by  Alex Tabarrok in

In 2002, Stock and Watson pointed out that the volatility in the growth rate of real GDP between 1984 and 2001 was much lower than it had been between 1960 and 1983, a phenomena dubbed the great moderation. In 2004, Ben Bernanke credited better monetary policy for the great moderation–meaning, of course, better monetary policy under Volcker, Greenspan and (Governor and later Chair) Bernanke. Other people credited sectoral changes in the structure of the economy such as the shift away from volatile sectors like manufacturing to less volatile sectors like health care. Improved information technology that led to better inventory control and smoother adjustments is another explanation. Some even argued that the great moderation was due to financial innovation! Yet others said it was just dumb luck. The dumb luck view got a boost with the great recession in 2008. Subsequently, many people mocked the idea of the great moderation and those who had tried to take credit.

Yet it is now clear that the great recession interrupted but did not end the great moderation. Since the great recession ended, growth in real GDP has been much less volatile than in the 1950s to 1980s. Indeed, volatility has been lower even taking into account the great recession. In the graph, for example, I simply bound the peaks and valleys. More sophisticated measures show the same thing.

Of the possible explanations, we can now rule out luck. The economy isn’t confronted with fewer shocks than in the past but rather we are adjusting to shocks more successfully. Overall, however, I’d say the causes of the great moderation are still up for grabs.

One problem with most of the theories is that they predict more moderation over time. Manufacturing has continued to decline as a share of GDP, for example. Information technology has gotten much better since 1984. Financial innovation has, if anything, increased in scope. If you squint maybe the great moderation has gotten a bit more moderate over time but that isn’t clear.

Better monetary policy does fit the data in the sense that it could have been a one-time learning (thank you Milton Friedman). But I find it difficult to believe that policy makers are so much wiser than in the past or even that monetary policy has that much influence over the real economy. We also have to grapple with the fact that many countries have experienced a great moderation. In my view this pushes towards an explanation on the real side of the economy, albeit that is a judgment call that the world is more similar in real factors like technology than it is in policies.

We can rescue some of the real theories with limits or endogenous offsets. Inventory control, for example, can only get so good and not better. I find this plausible but it would be more convincing if we could pinpoint the key innovation. Some financial innovations might reduce volatility but ala Minsky also cause people to take more risks (an endogenous offset). That too has some plausibility but again it would be better if we could pinpoint which were the volatility decreasing innovations and which the volatility increasing innovations.

It’s striking that the great moderation never ended and we still have no solid explanation for why it happened.

How simple can tax reform get? (from the comments)

by  Tyler Cowen in

The corporate income tax could be reduced to zero if all corporations were treated as pass-thru’s. However, for a variety of technical and practical reasons (too lengthy to discuss here), that is not feasible. Under the current regime, many businesses have the option to be treated as pass-thru’s (e.g., LLC’s and partnerships) and thus taxed only once at the individual rate, but for most publicly traded and very large entities, entities with foreign shareholders, etc., that is not possible or practical. One could also consider an imputation system such as used by the UK, but that is also messy.

The ideal system should treat all income at the same rate, regardless of the form of business. Currently, corporate income (including distributions) is subject to a higher rate than income from non-corporate entities. The federal marginal rate is currently 48 percent (35% + (.20 x .65) = 48%) compared with a marginal rate of 39.6% on ordinary income. These rates should be equalized and, preferably, the rate of corporate tax and the rate on distributions should also be roughly equal in order not to discourage corporate re-investment over distributions or vice versa and therefore avoid undue distortion regarding decisions on the allocation of capital. Thus, at the current marginal rate of 39.6%, the current proposal of a corporate rate of 25% would roughly achieve this with the current dividend marginal rate of 20% (25% + (.20 x .75) = 40%). Progressivity can be achieved (as it currently is) through progressive rates on the dividends/capital gains.

As someone who spent an entire professional career in the business, I find it amusing and naive that economists who lack any detailed knowledge of the Code or practical experience with its administration think it’s easy to radically “simplify the tax code”, make it “fair” to everyone, eliminate all tax avoidance, all at the same time! The three are simply not feasible simultaneously. As a wise man once said, “the life of the law has not been logic, but experience”.

The experience has also been that we need more than one type of tax in order to prevent the inevitable tax planning around one or the other. The system is complicated, but it is a result of a considerable amount of trial and error and political compromises. It can be made better, yes, but Trump’s promises are more credible than those who promise a one page tax code.

That is from Vivian Darkbloom.  And from another Vivian comment:

1. “…so just tax that person”. Please explain how, absent a corporate income tax, the US is going to effectively tax foreign investors, if they invest via a US or foreign corporation. This is a major practical problem of eliminating the corporate income tax completely. It would be very difficult to get one’s ounce of tax flesh out of non-US investors and put them on equal footing with US investors (the same issue arises with a system relying solely on consumption tax). It would be very impractical to abrogate the 68 or so bilateral tax treaties the US is party to today or the treaties of friendship and commerce.

On the mark.

*Greater Gotham: A History of New York City from 1898 to 1919*

by  Tyler Cowen in

Written by Mike Wallace, and weighing in at almost 1200 pp., this is one of the best books of the year.  Every page has interesting material.  You could pull out just the bits on the origins of the subway, or the development of the arts and entertainment, or immigration, and still have one of the best books of the year.  From one Amazon review:

The narratives are well-honed and to the point. There is not one ounce of journalistic fluff. There are no fanciful digressions into fads and fashions of the day. There is no imaginary dialogue, unlike the situation found in some “history books” written by mere poseurs.

And:

Simply put this is another masterpiece deserving the highest accolades. Tremendously rich in anecdotes it is superbly written. If you grew-up in New York, particularly in the outer boroughs, the book will have a special meaning for you as you see the physical, cultural and human development of your neighborhood. My favorite sections were on the development of the ‘arteries and ligaments’ of the city; the radicals among the Jewish immigrants, and New York in World War I.

I have read only a few hundred pages of it, and may not read it all, but am likely to read more than half of it.  Strongly recommended, it’s also one of the best books on American history period.  You can order it here.