Month: February 2018
Wednesday assorted links
1. The Norwegian century continues (WSJ): “When Norwegian athletes take to the ice and snow at the Olympics, they don’t mess around: the Scandinavian nation of just 5 million has won the most medals of any country in the history of the Winter Games.”
2. NYT profile of Vargas Llosa, not just the usual.
3. Are we running out of trademarks? Recommended, worthy of its own post, but not easy to excerpt.
Are mark-ups rising?
In a new Stigler Center working paper, I) challenge this explanation by showing that public-firm market power has not substantially increased in recent decades. Using financial statement data from public firm filings and closely following De Loecker and Eeckhout (2017)’s methodology, I calculate markups—prices over marginal costs—for the universe of non-utility, non-financial US public firms. Aggregating these markup estimates to annual estimates, I find that public firm markups increased only modestly since the 1980s. Moreover, this increase is within historical variation—measured markups have increased from 1980-2010 as much as they have decreased from 1950-1980.
Why the disagreement? While De Loecker and Eeckhout (2017) use similar data sources and methods, I argue that they do not use the best accounting measure of variable cost.
Here is more from James Traina. Via Harald Uhlig.
The five smallest industries by firm size
For the U.S.:
Fishing, hunting, trapping: 3.1 workers on average
Building construction: 5.5
Real estate: 5.9
Funds, trusts, and other financial vehicles: 6
Repair and maintenance: 6.1
Time for some creative disruption, people…
Those figures are from the new and excellent Big is Beautiful: Debunking the Myth of Small Business, by Robert D. Atkinson and Michael Lind.
Legal Money Illusion
The state of Virginia is raising the financial threshold for defining a theft as a felony for the first time in almost four decades. Virginia’s experience highlights a peculiarity of American criminal law that results in petty criminals in many states being charged and punished as if they were big-time criminals.
For property crimes such as theft or vandalism, states set financial thresholds that are intended to differentiate low-level crimes chargeable as misdemeanors from more serious offenses chargeable as felonies. In Virginia, the legislature in 1980 defined theft as a felony if the property stolen was worth more than $200. Because of inflation, more and more petty thefts that were originally defined as misdemeanors became felonies with each subsequent year. In 2017, someone who shoplifted a $240 pair of eyeglasses that would have cost only $80 in 1980 would be charged as a felon — even though that was not the law’s original intent. A felony charge can result in a petty criminal receiving a prison term, being barred from many occupations and in some states losing the right to vote.
Virginia is raising its felony standard to $500.
That is from Keith Humphreys at WaPo, note that Alaska uses indexing.
Manhattan land prices
Using vacant land sales, we construct a land values index for Manhattan from 1950 to 2014. We find three major cycles (1950–1977, 1977 to 1993, and 1993 to 2009) with land values reaching their nadir in 1977, just after the city’s fiscal crisis. Overall, we find the average annual real growth rate to be 5.5%. Since 1993, land prices have risen quite dramatically, and much faster than population or employment growth, at an average annual rate of 15.8%, suggesting that barriers to entry in real estate development are causing prices to rise faster than other measures of local well-being. Further, we estimate the entire amount of developable land on Manhattan in 2014 was worth approximately $1.74 trillion. This would suggest an average annual return of about 6.4% since the island was first inhabited by Dutch settlers in 1626.
The article is by Jason Barr, Fred Smith, and Sayali Kulkarni, via the excellent Kevin Lewis.
Tuesday assorted links
How Building Regulations Subsidize Mansions
Regulations that prevent land from being fully developed raise the price of housing. That’s true but land use regulations can also make some types of housing less expensive. In particular, Jaap Weel has a good post explaining how land regulations subsidize mansions.
Consider the buildings below: a mansion on a 1 acre lot in Atherton, and a 350 unit mixed use condo on a 1.6 acre lot 2 miles further up the peninsula in Redwood City. The mansion just sold for $6m. The condo building, when finished, will probably fetch hundreds of millions.
If it weren’t for Atherton’s zoning code, you’d never be able to buy that mansion for a mere $6m. A developer that wanted to tear it down and build condos could bid far more than that. But the zoning code mandates single-unit buildings with a floor area ratio below 18% on lots of at least 1 acre, so $6m it is. Quite the bargain.
In a market economy bidding tends to move resources from low-valued uses to high-valued uses. Regulations that prevent bidding freeze resources into low-valued uses–that’s bad for the resource owners and bad for society as the total value of production is reduced but it can be good for the consumers of low-valued uses.
Addendum: For more on floor area ratio regulations, see my video on skyscrapers and slums in Mumbai.
*Skin in the Game*, the new Nassim Taleb book
By some mysterious mechanism, people fail to realize that the principal thing you can learn from a professor is how to be a professor…
And:
…the deep message of this book is the danger of universalism taken two or three steps too far — conflating the micro and the macro.
This is Taleb’s deepest and most Straussian book, quickly you will notice that the Levant and the ancient world haunt the pages. It may mystify some of his more casual fans, but I am happy to recommend it — it is the manly book Taleb wanted to write and it is full of ideas. After all, he had skin in the game.
His closing advice is this:
- Never engage in virtue signaling;
- Never engage in rent-seeking;
- You must start a business. Put yourself on the line, start a business.
You can pre-order it here.
Why are U.S. firms holding more cash?
Somehow I missed this 2014 paper when it came out:
This paper explores the hypothesis that the rise in intangible capital is a fundamental driver of the secular trend in US corporate cash holdings over the last decades. Using a new measure, we show that intangible capital is the most important firm-level determinant of corporate cash holdings. Our measure accounts for almost as much of the secular increase in cash since the 1980s as all other determinants together. We then develop a new dynamic dynamic model of corporate cash holdings with two types of productive assets, tangible and intangible capital. Since only tangible capital can be pledged as collateral, a shift toward greater reliance on intangible capital shrinks the debt capacity of firms and leads them to optimally hold more cash in order to preserve financial flexibility.
That is from Antonio Falato, Dalida Kadyrzhanova, and Jae W. Sim. Once again, it seems that intangible capital is one of the biggest underrated ideas in economics.
Monday assorted links
Which is the most underrated conspiracy theory?
I offer my take at the bottom of this Bloomberg column, but here are some reasons for the ones I reject:
To approach such an investigation, you might ask how much you believe improbable testimonies from witnesses who give every indication of being normal people. If you find sane witnesses persuasive, you might think there is some chance of UFO accounts being true (perhaps with a conspiracy-based coverup). There have been a variety of sober accounts of UFO visitations, most notably the story of Betty and Barney Hill.
Unfortunately for this nomination, psychological research on self-deception and the literature on the unreliability of witness testimony suggest that our minds can talk us into believing all sorts of things happened that actually didn’t. So witnesses don’t sway me much. I notice also that UFO claims have plummeted since the advent of mobile phones with cameras (“Oh, did you get a photo of them?”). And so I must look elsewhere for the most plausible conspiracy theory. The Bigfoot and Yeti tales take a tumble for similar reasons, and I don’t think anyone actually saw Elvis or Jim Morrison walking around in the 1990s.
Another way to search for true conspiracies is to scour history for deathbed confessions. Did any Cuban or Soviet agents, shortly before dying, blurt out that they knew the true story of President John Kennedy’s assassination? As far as I know, these admissions are hard to come by. That’s another reason for not believing in most conspiracy theories.
There is much more at the link., including on Malaysian Airlines Flight 370 and the Trilateral Commission, not to mention sports betting.
Randomizing Religion: The Impact of Protestant Evangelism on Economic Outcomes
That is a new and important paper by Gharad Bryan, James J. Choi, and Dean Karlan, and here are the results:
To test the causal impact of religiosity, we conducted a randomized evaluation of an evangelical Protestant Christian values and theology education program that consisted of 15 weekly half-hour sessions. We analyze outcomes for 6,276 ultra-poor Filipino house holds six months after the program ended. We find significant increases in religiosity and income, no significant changes in total labor supply, assets, consumption, food security, or life satisfaction, and a significant decrease in perceived relative economic status. Exploratory analysis suggests the program may have improved hygienic practices and increased household discord, and that the income treatment effect may operate through increasing grit.
File under “increased household discord”…
The further influence of China on Hollywood
Abstract
In various cultural and behavioral respects, emerging market consumers differ significantly from their counterparts of developed markets. They may thus derive consumption utility from different aspects of product meaning and functionality. Based on this premise, we investigate whether the economic rise of emerging markets may have begun to impact the typical “one-size-fits-all” design of many international product categories. Focusing on Hollywood films, and exploiting a recent relaxation of China’s foreign film importation policy, we provide evidence suggesting that these impacts may exist and be non-negligible. In particular, we show that the Chinese society’s aesthetic preference for lighter skin can be linked to the more frequent casting of pale-skinned stars in films targeting the Chinese market. Implications for the design of international products are drawn.
That is from a new paper by Manuel Hermosilla, Fernanda Gutierrez-Navratil, and Juan Prieto-Rodriguez.
Tulip mania wasn’t
Tulip mania wasn’t irrational. Tulips were a newish luxury product in a country rapidly expanding its wealth and trade networks. Many more people could afford luxuries – and tulips were seen as beautiful, exotic, and redolent of the good taste and learning displayed by well-educated members of the merchant class. Many of those who bought tulips also bought paintings or collected rarities like shells.
Prices rose, because tulips were hard to cultivate in a way that brought out the popular striped or speckled petals, and they were still rare. But it wasn’t irrational to pay a high price for something that was generally considered valuable, and for which the next person might pay even more.
Tulip mania wasn’t a frenzy, either. In fact, for much of the period trading was relatively calm, located in taverns and neighbourhoods rather than on the stock exchange. It also became increasingly organised, with companies set up in various towns to grow, buy, and sell, and committees of experts emerged to oversee the trade. Far from bulbs being traded hundreds of times, I never found a chain of buyers longer than five, and most were far shorter.
And what of the much-vaunted effect of the plague on tulip mania, supposedly making people with nothing to lose gamble their all? Again, this seems not to have existed.
That is from Anne Goldgar, there is much more at the link, including an explanation of how the myths about Tulip Mania spread, fake news basically. Here is her earlier book on the topic, here is an earlier Peter Garber piece.
Sunday assorted links
1. Male and female economists have different political opinions (The Economist).
2. The French fertility rate has begun to slide (The Economist).
3. Profile of the still-underrated Jean Drèze.
4. Is learning to program getting harder?
5. Top5itis?