Month: December 2017

Sunday assorted links

1. What ever happened to automobile insurance as an economic issue?

2. Why are guitar sales declining?

3. What is Mitch Daniels doing with Purdue?

4. Are Mormon beauty queens taking over your Instagram feed?

5. “For all the deserved attention the opioid crisis gets, alcohol overuse remains a persistent public health problem and is responsible for more deaths, as many as 88,000 per year.” NYT link here.

6. The Black Mirror, season four episode “USS Callister” is worth watching, reviews here, among other things it is a retelling of The Tempest albeit with updated plot twists.  And profile of actress Hong Chau from Downsizing (NYT).  The movie is also relatively sophisticated on “disability issues.”

7. One of the more interesting, informationally dense, acousto-electric best music of 2017 lists.

8. Six volcanoes to watch in 2018.

Henry George, Swift, and Piketty go to the movies (premises discussed, but no spoilers)

Yes, I’m talking about Downsizing, starring Matt Damon.  If Henry George is right about exorbitant rents and land scarcity, of course the solution is to shrink the people, thereby creating in real terms more land (plus solving a lot of environmental problems).  In this movie, shrinking people to a few centimeters tall raises the value of a dollar by about 1000x — how’s that for a Georgist result?  The small people live in splendid houses, massive relative to their diminutive size, and can eat all the gourmet food they want because they need only a snippet of foie gras or for that matter a very small piece of diamond.  Yet they still must interact (badly) with the larger world, thus the Swift connection.  How about Piketty?  Well, the small people have trouble mastering nature or producing for the larger outside world, so they are dependent on their preexisting wealth.  The wealth to income ratio is remarkably high, and woe unto anyone who has to rely on labor income in the “small world.”

Then the movie starts!  It’s an uneven film in a number of ways, still for economics “food for thought,” or for that matter social critique, I haven’t seen anything nearly as good for a while.

Thoughts about Morocco

1. Fez is perhaps the place in the world with the clearest continuous connections to the time of late antiquity.  Maimonides and Ibn Khaldun worked there, and walking through the medina that is not hard to imagine — you can dine in a small restaurant in the home of Maimonides (recommended, most of all the vegetables).  Fez has the world’s oldest university, dating from the 859, and the world’s oldest continuously operating library, from 1359.

2. The country has been remarkably stable relative to the rest of the region, whether you take that to be the Middle East, MENA, or Africa.  But the nature of the associated stability lessons remains unclear, read more here.

3 Social capital is higher than it was during my last visit twenty years ago.  That said, every transaction is still a potential swindle waiting to happen.  And if any English-speaking Moroccan climbs into your train cabin, and claims his brother is the most wonderful guide in town and offers up his phone number…simply decline any further contact.  Especially if the guy has a scar on his face.

4. From the OEC:

The top exports of Morocco are Cars ($2.95B), Insulated Wire ($2.46B), Mixed Mineral or Chemical Fertilizers ($1.83B), Phosphoric Acid($1.14B) and Non-Knit Women’s Suits ($1B)…

It could be much worse, but the dangers of premature deindustrialization are real.  Their exports are too dependent on Spain and France, two countries with many other trading partners and also relatively slow growth rates.  Agriculture still accounts for 40-45% of employment.  Tourism continues to grow, but service culture in the country is not top-notch.  They export a lot of marijuana too.

5. The country has the (distant) potential to evolve into an Atlantic economy — check the map — and I don’t just mean the history of Rabat/Salé as a pirate state.  Nonetheless the actual trade of the nation paints it as a Mediterranean economy, and most Mediterranean economies have not done very well lately.

6. Moroccans do not seem very religious.  Counterintuitively, that may be why, when they are living in Europe, they are especially vulnerable to radicalization. They are not already “filled up with belief,” and experience anomie, which is then exploited by terror groups.  Arguably the same is true for Uighurs in China, by the way, who are recruited by the thousands for foreign ISIS crusades and the like.

7. More and more of the country’s gdp is concentrating in and near Casablanca, which is underrated as a visit.  The famous Grand mosque, as Yana pointed out, in fact resembles a cavernous mosque-clock tower-opera house-French railway station, with even some elements of a medieval cathedral.  Not all devout Muslims are happy with it.

8. The best bistillah is in Meknes, where it is moister and less sweet.  In Casablanca I recommend the seafood stalls in the Grand Marché, and the roast chicken joints, always with french fries.

Saturday assorted links

1. Lawrence Mishel is retiring.

2. John Cochrane on taxing university endowments.

3. Why did everything take so long?

4. The ten best history books of the last ten years?

5. “Margaret Thatcher’s aversion to pandas revealed by declassified papers.

6. “The Queen owns all the swans in Britain.  Or, more accurately: Any unclaimed mute swan in open waters in England and Wales is hers if she wants it.”  Link here, noisy video at that link.

The piece has some excellent sentences, including: “For 700 years swan-related royal duties were handled by the Keeper of the Swans. In 1993, a major shakeup in royal swan bureaucracy split the position into two offices: Swan Marker and Swan Warden. Since then the roles have been held, respectively, by David Barber and Chris Perrins.”

And: “It’s not clear how David Barber got his job. A German reporter asks him outright; he smiles and says mysteriously, “I can’t really answer that, can I.” He owns a boat business, he says, when pressed for further details. He is not an ornithologist.”

And: “Peacocks don’t lay eggs. Peahens do,” the man says, settling smugly back into his seat. “Everybody falls into that trap.” She doesn’t push him overboard, but she should.”

And: “One of the most famous swans in Britain was Mr. Asbo, who conducted a campaign of terror against boaters on Cambridge’s River Cam from 2009 to 2012. (Asbo is British shorthand for an “anti-social behavior order,” a misdemeanor handed out for loutish behavior.) “

Tax reform sentences to ponder

Income categories are paying almost exactly the same share of federal taxes as before. Millionaires actually pay a tiny bit larger share in the new bill.

That is from John Cochrane, drawing on Greg Mankiw, with the source being the Joint Committee on Taxation.  I would say that media coverage of this bill — which does have many objectionable features — has been somewhat less than ideal, most of all on the issue of redistribution.  Overall, claims about redistribution — from either side — are much more likely to be wrong or misleading than claims about most other topics.

Why cut the corporate tax rate under full expensing?

Second, that there is some pure “profit,” some pure “rent,” some “unreproducible input” (i.e. something that did not come from a past unmeasured investment), something like the classic “unimproved land” that can be taxed, without distorting any decision. It goes hand in hand with the complaints of greater monopoly.

But I find it hard to find and name a concrete source of profits that, once named, does not distort the decision to undertake some useful activity to make those profits. Starting, organizing, and improving a business, figuring out the intangible organizational capital that makes it a successful competitor, creating a product and a brand name, are all crucial activities for which no investment tax credit will successfully offset a large profits tax. “Intangible capital” is about all most companies have these days.

That is John Cochrane replying to Stephen Williamson, there is much more at the link.  I would add also that Williamson’s model seems to take “r” as constant.

What I’ve been reading

1. Pierre LeMaitre, Three Days and a Life.  French crime fiction, conceptual, very good for those who like to read in this direction.  I am glad I finished it.  The first half is pretty good, the second half excellent.

2. Fred Hoyle, The Black Cloud.  The legacy of Wells and Stapledon surfaces yet again, if you are looking for an early but compelling science fiction novel you haven’t read, try this.  The ecological features of the story are striking too.

3. John Wyndham, Chocky.  How would/should parents react if one of their children appeared to be possessed?  What weights should you assign to “possession by spirits,” as opposed to “possession by aliens”?  Both conceptually intriguing and well-written.  Also read his The Midwich Cuckoos on similar themes.

4. Margaret Atwood, Hag-Seed: A Retelling of the Tempest.  Given the author is so famous, it’s strange this book hasn’t received more attention.  Perhaps that is because it requires a reasonable degree of familiarity with Shakespeare’s The Tempest, worth the reread if you must or are so inclined.  This is one of Atwood’s best novels, and it focuses on an over the hill director’s attempt to stage Shakespeare at the local prison.

5. William Shakespeare, The Tempest.  Given that I basically never regret a Shakespeare reread, I suppose I should do them more often.  Folger edition of course.

Friday assorted links

1. “…air crews have, on average, the highest yearly dose of radiation out of all radiation-exposed workers in the US. This means they receive more radiation exposure than people who work alongside nuclear reactors.”  Link here.

2. Why do the Chinese love hot water?

3. “Pet owners in Victoria are allowed to keep crocodiles up to 2.5m in length.

4. Recreating impressions of communism as a form of therapy for those suffering from dementia.

5. Day care as a factor driving car ownership.

6. Four centuries of return predictability.

7. Ezra Klein favorite books of the year list, he also favors Pachinko.

Most Popular MR Posts of 2017

The most popular post on MR for 2017 was my post, Switzerland is Prepared for Civilizational Collapse. Who can tell what will go viral? I suppose people are thinking a lot about civilizational collapse in recent times.

Next was Tyler’s post on Richard Thaler’s Nobel Prize.

There’s a lot of interest in Tyler’s religious beliefs as What is the Strongest Argument for the Existence of God? and Why I Don’t Believe in God were both widely read and commented upon.

Next came a bunch of econ posts from both Tyler and myself including:

Not surprisingly politics was also popular, including Tyler’s The Show so Far and Who Should be Shamed? and my post Authoritarians Distract Rather than Debate.

Overall, what strikes me is how normal 2017 seems. Compare with last year’s top posts, which are crazy. I don’t think 2017 was any less crazy than 2016 but–god help us–crazy has become normal.

The Most Expensive Mile of Subway Track on Earth

Blogger Alon Levy first drew attention to the fact that building a subway costs far more in New York City than elsewhere in the United States or the world. In a superb investigation the NYTimes updates that finding and investigates why:

The estimated cost of the Long Island Rail Road project, known as “East Side Access,” has ballooned to $12 billion, or nearly $3.5 billion for each new mile of track — seven times the average elsewhere in the world. The recently completed Second Avenue subway on Manhattan’s Upper East Side and the 2015 extension of the No. 7 line to Hudson Yards also cost far above average, at $2.5 billion and $1.5 billion per mile, respectively.

So why are costs so high? The NYTimes concludes:

For years, The Times found, public officials have stood by as a small group of politically connected labor unions, construction companies and consulting firms have amassed large profits.

Trade unions, which have closely aligned themselves with Gov. Andrew M. Cuomo and other politicians, have secured deals requiring underground construction work to be staffed by as many as four times more laborers than elsewhere in the world, documents show.

Construction companies, which have given millions of dollars in campaign donations in recent years, have increased their projected costs by up to 50 percent when bidding for work from the M.T.A., contractors say.

Consulting firms, which have hired away scores of M.T.A. employees, have persuaded the authority to spend an unusual amount on design and management, statistics indicate.

Where the Times piece goes well beyond what has been discussed before is the detail by which it supports these conclusions and the careful comparison with similar but much cheaper projects elsewhere in the world such as Paris.

It will not escape notice that New York buys subway construction the way all of America buys health care.

Read the whole thing.

Why has investment been weak?

Germán Gutiérrez and Thomas Philippon have a new paper on this topic:

We analyze private fixed investment in the U.S. over the past 30 years. We show that investment is weak relative to measures of profitability and valuation — particularly Tobin’s Q, and that this weakness starts in the early 2000’s. There are two broad categories of explanations: theories that predict low investment along with low Q, and theories that predict low investment despite high Q. We argue that the data does not support the first category, and we focus on the second one. We use industry-level and firm-level data to test whether under-investment relative to Q is driven by (i) financial frictions, (ii) changes in the nature and/or localization of investment (due to the rise of intangibles, globalization, etc), (iii) decreased competition (due to technology, regulation or common ownership), or (iv) tightened governance and/or increased short-termism. We do not find support for theories based on risk premia, financial constraints, safe asset scarcity, or regulation. We find some support for globalization; and strong support for the intangibles, competition and short-termism/governance hypotheses. We estimate that the rise of intangibles explains 25-35% of the drop in investment; while Concentration and Governance explain the rest. Industries with more concentration and more common ownership invest less, even after controlling for current market conditions and intangibles. Within each industryyear, the investment gap is driven by firms owned by quasi-indexers and located in industries with more concentration and more common ownership. These firms return a disproportionate amount of free cash flows to shareholders. Lastly, we show that standard growth-accounting decompositions may not be able to identify the rise in markups.

On the road I have yet to read it, but it looks like one of the most important papers of the year.

My Law and Literature reading list 2018

The New English Bible, Oxford Study Edition [not all of it]

Guantanamo Diary, by Mohamedou Ould Slahi

Petina Gappah, The Book of Memory

Glaspell’s Trifles, available on-line.

Year’s Best SF 9, edited by David G. Hartwell and Kathryn Cramer, used or Kindle edition is recommended

The Metamorphosis, In the Penal Colony, and Other Stories, by Franz Kafka, edited and translated by Joachim Neugroschel.

In the Belly of the Beast, by Jack Henry Abbott.

Sherlock Holmes, The Complete Novels and Stories, Sir Arthur Conan Doyle, volume 1, also on-line.

I, Robot, by Isaac Asimov.

Juan Gabriel Vasquez, Reputations

The Pledge, Friedrich Durrenmatt.

Ian McEwan, The Children Act

Shakespeare, The Tempest, Folger edition

Margaret Atwood, Hag-Seed

Curtis Dawkins, The Graybar Hotel

Movies: To be determined.

Assorted Thursday links

1. Why did Bitcoin take so long?  And is it ugly?

2. Cashless restaurants in NYC (NYT).

3. “...infants who look like their father at birth are healthier one year later. The reason is such father–child resemblance induces a father to spend more time engaged in positive parenting.”  If looks could kill…

4. Are wealthier millionaires happier?

5. “Therefore the expected years of life lost for a single birth cohort due to the changes in death rates from 2015 to 2016 was larger than the years of life lost by Americans in the Iraq war.

6. Does faculty tweeting help the reputation of universities?

In Understanding Business Fluctuations Not all GDP is Equal

In standard macroeconomic models, GDP is GDP and an industry is important only to the extent that it produces GDP. In other words, there are big industries and small industries but there are no special industries. The standard view implies that the structure of production can be ignored. It doesn’t matter, for example, whether an industry sells to final consumers or to other businesses. It doesn’t matter whether an industry sells an easy-to-substitute product or a hard-to-substitute product. And it doesn’t matter whether an industry is a weak-tie link or a strong-tie link. Thus, in the standard view, the oil industry is no more important for understanding economic fluctuations than say the retail sales industry, since they are about the same size.

The standard view isn’t arbitrary, Hulten proved that it was true under certain assumptions. Hulten’s theorem appeared to offer a very useful simplification and so it diverted the attention of economists away from trying to model the structure of production.

But I’ve always been skeptical. One reason is that rapid increases in the price of oil have preceded almost all U.S. recessions (see Hamilton’s papers) and such increases appear to be much more important than the size of the oil sector would allow. More generally, although the canonical real business cycle model emphasizes aggregate technology shocks, I’ve always looked favorably on variations with sectoral shocks–this is one reason why Modern Principles is one of the few principles of economics textbooks to devote significant attention to real shocks, including oil shocks, and the mechanisms that can transmit and amplify these shocks from one sector to the wider economy.

The sectoral approach gets new support in a recent paper, The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten’s Theorem (non-gated) by Baqaee and Farhi. The authors show that Hulten’s theorem offers a true simplification only under very restrictive conditions. Relax those conditions and what seem like second-order mechanisms can have first-order effects. The structure of production–how industries are linked to one another, elasticities of substitution, reallocation speeds and so forth–matters in theory.

In a calibration Baqaee and Farhi consider “the response of GDP to shocks to specific industries” and:

…It turns out that for a large negative shock, the “oil and gas” industry produces the largest negative response in GDP – this despite the fact that the oil and gas industry is not the largest industry in the economy.
Hulten’s simplification came at too high a price. Further progress in understanding business fluctuations will come from developing microeconomic foundations to macroeconomics–not simply by subjecting a utility-maximizing representative agent to an optimization problem but by investigating the real structure of production in all of its complexity.

Why do so many intellectuals favor governmental solutions?

Building on an essay by Robert Nozick, here is Julian Sanchez:

If the best solutions to social problems are generally governmental or political, then in a democratic society, doing the work of a wordsmith intellectual is a way of making an essential contribution to addressing those problems. If the best solutions are generally private, then this is true to a far lesser extent: The most important ways of doing one’s civic duty, in this case, are more likely to encompass more direct forms of participation, like donating money, volunteering, working on technological or medical innovations that improve quality of life, and various kinds of socially conscious entrepreneurial activity.

You might, therefore, expect a natural selection effect: Those who feel strongly morally motivated to contribute to the amelioration of social ills will naturally gravitate toward careers that reflect their view about how this is best achieved. The choice of a career as a wordsmith intellectual may, in itself, be the result of a prior belief that social problems are best addressed via mechanisms that are most dependent on public advocacy, argument and persuasion—which is to say, political mechanisms.

…If the world is primarily made better through private action, then the most morally praiseworthy course available to a highly intelligent person of moderate material tastes might be to pursue a far less inherently interesting career in business or finance, live a middle-class lifestyle, and devote one’s wealth to various good causes. In this scenario, after all, the intellectual who could make millions for charity as a financier or high-powered attorney, but prefers to take his compensation in the form of leisure time and interesting work, is not obviously morally better than the actual financier or attorney who uses his monetary compensation to purchase material pleasures.

Here is the full essay, via Jeffrey Flier.