Year: 2019
Would a payroll tax cut help avoid a recession?
Right now, probably not. Here is an excerpt from my latest Bloomberg column:
The inclination in American politics is to cut the payroll tax on the worker side, not the employer side. That is the opposite of what should be done.
In a recession, the usual problem is that too many people are seeking too few jobs. The reluctance lies on the side of the employer, not the worker. So cutting the taxes paid by the worker won’t help much. In contrast, cutting the taxes paid by the employer might at least boost the demand for workers and thus stimulate employment.
In the long run, according to economic theory, it does not matter whether you cut payroll taxes for workers or employers; eventually wages will adjust so that the true, tax-adjusted set of wage offers ends up the same. But for the purposes of fighting a near-term recession, it matters very much whose taxes are cut.
Do read the whole thing. Do note, however, that I am not currently expecting a recession, I just don’t see enough pointers in that direction, and furthermore most of the time recessions do not happen.
Thursday assorted links
1. Leela Chess Zero. And the latest in computer chess. And podcast with Ken Regan. And Shelby Lyman passes away (NYT).
3. Not a mistake, but touch football is now requiring helmets (NYT).
4. Cinematic markets in everything for Canadian service dogs.
5. “Teacher-designed practice was perceived as less relevant to improving performance on the violin than practice alone. Further, amount of teacher-designed practice did not account for more variance in performance than amount of practice alone.” Link here.
The bullish case for ride-sharing services
In a survey by AARP last year, only 29 percent of those over 50 had used ride-hailing apps. Two-thirds said they weren’t likely to do so in the coming year, citing in part concerns about safety and privacy.
I don’t think today’s young will lose the capacity to use ride-sharing services as they age. In the meantime, there is this:
So Lyft and Uber and others are contracting with third parties, bypassing the need for older riders to use apps or to have smartphones at all.
They’re joining forces with health care systems, for instance. In the past 18 months, more than 1,000 — including MedStar, in the Washington area, and the Boston Medical Center — have signed on with Uber Health for “nonemergency medical transportation,” the company said.
Case managers and social workers can use Uber or Lyft to ferry patients to or from clinics and offices, reducing missed appointments.
Here is the full NYT story by Paula Span.
Lie to Me
From A Test of the Micro Expressions Training Tool:
The theory behind micro‐expressions posits that when people attempt to mask their true emotional state, expressions consistent with their actual state will appear briefly on their face. Thus, while people are generally good at hiding their emotions, some facial muscles are more difficult to control than others and automatic displays of emotion will produce briefly detectable emotional “leakage” or micro‐expressions (Ekman, 1985). When a person does not wish to display his or her true feelings s/he will quickly suppress these expressions. Yet, there will be an extremely short time between the automatic display of the emotion and the conscious attempt to conceal it, resulting in the micro‐expression(s) that can betray a true feeling and according to theory, aid in detecting deception.
…The METT Advanced programme, marketed by the Paul Ekman Group (2011), coined an “online training to increase emotional awareness and detect deception” and promoted with claims that it “… enables you to better spot lies” and “is meant for those whose work requires them to evaluate truthfulness and detect deception—such as police and security personnel” (Paul Ekman Group, METT Advanced‐Online only, para. 2). The idea that micro‐expression recognition improves lie detection has also been put forth in the scientific literature (Ekman, 2009; Ekman & Matsumoto, 2011; Kassin, Redlich, Alceste, & Luke, 2018) and promoted in the wider culture. One example of this is its use as a focal plot device in the crime drama television series Lie to Me, which ran for three seasons (Baum, 2009). Though a fictional show, Lie to Me was promoted as being based on the research of Ekman. Ekman himself had a blog for the show in which he discussed the science of each episode (Ekman, 2010). Micro‐expression recognition training is not only marketed for deception detection but, more problematically, is actually used for this purpose by the United States government. Training in recognising micro‐expressions is part of the behavioural screening programme, known as Screening Passengers by Observation Technique (SPOT) used in airport security (Higginbotham, 2013; Smith, 2011; Weinberger, 2010). The SPOT programme deploys so‐called behaviour detection officers who receive various training in detecting deception from nonverbal behaviour, including training using the METT (the specific content of this programme is classified, Higginbotham, 2013). Evidently, preventing terrorists from entering the country’s borders and airports is an important mission. However, to our knowledge, there is no research on the effectiveness of METT in improving lie detection accuracy or security screening efficacy.
…Our findings do not support the use of METT as a lie detection tool. The METT did not improve accuracy any more than a bogus training protocol or even no training at all. The METT also did not improve accuracy beyond the level associated with guessing. This is problematic to say the least given that training in the recognition of micro‐expressions comprises a large part of a screening system that has become ever more pervasive in our aviation security (Higginbotham, 2013; Weinberger, 2010).
Note that the online training failed but micro-expressions are real and better, more intensive training or maybe an AI could do better though on that last I wouldn’t accept the hype.
Hat tip the excellent Rolf Degen on twitter.
The nature of pessimism
Pessimists are happy dreamers. They make the world in their own image and so always manage to feel at home.
That is from Fernando Pessoa, The Book of Disquiet.
What I’ve been reading
1. Robert Lawson and Benjamin Powell, Socialism Sucks: Two Economists Drink Their Way Through the Unfree World. A good, short “give it to your high school kid” book on why socialism is not an entirely ideal way to arrange society.
2. Ben Lewis, The Last Leonardo: The Secret Lives of the World’s Most Expensive Painting. I felt I knew this story already, but nonetheless found interesting information and conceptual analysis on virtually every page. And while the author is agnostic and balanced, the text upped my opinion of the “likely Leonardo weighted expected value” component from about 0.1 to maybe 0.25? Yet so much fuss about a painting that resurfaced in 1907 — model that… And don’t forget: “None of the great art historians and connoisseurs who saw it before 1958 identified it as a Leonardo.” Recommended.
3. Lene Rachel Andersen and Tomas Björkman, The Nordic Secret: A European story of beauty and freedom. There should be many more books about why the Nordics are special, and this is one of them. The central notion here is “secular Bildung” as a means of elevating society and cooperative relations. Uneven in its structure of exposition, but definitely interesting in parts and the importance of the question makes this better than most of the other books you might be likely to read. Just don’t expect 100% polish.
4. David Cahan, Helmholtz: A Life in Science. At 768 pp., I only read about half of this one. Nonetheless I read the better half, and it is one of the more useful treatments of 19th century German science. I hadn’t realized the strong connections with Siemens and Roentgen, for instance, and one clear lesson is that German science of that time had some pretty healthy institutions outside of the formal university system.
Crypto to make your head spin
We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a risk- adjusted martingale. We call this result Crypto-Enforced Monetary Policy Synchronization (CEMPS). Deviating from interest equality risks approaching the zero lower bound or the abandonment of the national currency. If the global currency is backed by interest-bearing assets, additional and tight restrictions on monetary policy arise. Thus, the classic Impossible Trinity becomes even less reconcilable.
That is a new paper from Pierpaolo Benigno, Linda Schilling, Harald Uhlig.
Wednesday assorted links
Warsaw notes
I recommend a trip here. Imagine a European country with (roughly) a four percent growth rate and the streets full of young people. Dining out here is much better than it was in Milan, and cheaper too (eat in the serious Polish place on the left side of the food hall, Hala Kozyski, and get gelato afterwards). What seems to be the city’s second best hotel is less than half the price it would be in Western Europe. For better or worse, e-scooters and bike lanes are everywhere. The city has a lively concert life, even in August.
There aren’t many traditional tourist sites. Construction workers will look at you funny if you visit the remnants of the Warsaw Ghetto, and the memorial plaque isn’t exactly prominent. The city’s much-heralded Jewish Museum is as much a critique of the Jews during medieval times as anything else. I don’t consider those sites as focal for the Warsaw population as a whole, but the official side of life here has not exactly taken the German tack of ongoing apologies. It is now against the law to suggest that Poles were complicit in the Holocaust (now only a fine, the threat of imprisonment was removed).
These days the 1953 Stalin building downtown looks quite beautiful. Cross the river to see more of Warsaw’s residential districts, such as the Praga district, and stop by to see the architecture — both new and old — near the Neon Museum.
“Poland issued more first-time residence permits to non-EU citizens than any other EU nation in 2017, with 86% of them going to Ukrainians, in the latest available European migration statistics. Those Ukrainians accounted for 18.7% of all newcomers to the entire EU.” (WSJ link here).
Poland is a country where nationalism doesn’t seem to be going away. In fact, there seems to be a kind of intertemporal substitution into a new nationalism, a secure nationalism, finally safe from the bullying of larger neighbors. Polish flags are everywhere. So many Poles, even secular ones, view the Catholic Church as the central institution of Western civilization, and indeed they have a concept of Western civilization as having a central institution (though a minus for gay rights).
The country is not on the verge of becoming a “Western liberal’s dream,” at least not in terms of mood or rhetoric. Yet actual life here is fairly liberal, and is more prosperous every day. 2019 has been the best year in Polish history, ever, and you feel it palpably.
Do not be surprised if more and more of Western Europe sees Polish nationalism as a model to be copied.
A countercultural take on China
That is what I serve up in my Bloomberg column, note it is a reminder more than a modal prediction. Here is one excerpt:
Is the rest of the world getting China wrong yet again? Maybe the country is not doomed to live out unending top-down rule. What is history, after all, but the realization of the wills of countless unpredictable human beings.
Past mistakes about China are too numerous to mention.
A list then follows. And:
But has China suddenly become so predictable? Are events there now no longer contingent on the exercise of human will? Modern China is one of the most unusual and surprising societies humankind has created. There are no good models for it, nor are there data from comparable historical situations.
There is, unfortunately, a tendency for Westerners to impose superficial narratives on China and the Chinese, often based on scant observation.
To close:
For myself, I don’t have a coherent story about how the Chinese might move to greater liberty in the next 10 to 15 years. But I do think the actions of the current regime can be read as signs of vulnerability rather than entrenchment. Taiwan and Hong Kong, despite its current crisis, remain strong examples of the benefits of liberalization. Meanwhile, the notion of the internet — even with censorship — as a liberalizing force has been too quickly dismissed, especially in an America that has fallen out of love with Big Tech.
Which leads to a reality even deeper than China’s unpredictability: people’s continuing capacity to respond to current events and shape their futures for the better. As you listen, watch and read about China, keep in mind this essential human quality.
There is much more at the link.
The polity that is Poland
A new law that comes into effect in Poland this week will scrap income tax for roughly 2 million young workers.
It’s an attempt by the government to stop the dramatic brain drain Poland has experienced since it joined the European Union 15 years ago.
Prime Minister Mateusz Morawiecki said the tax exemption will bring new opportunities for young people “so they match those available in the West.” Poles under the age of 26 who earn less than 85,528 Polish zloty ($22,547) a year will be exempt from the country’s 18% income tax starting August 1. The allowance is generous, considering the average Polish salary stands at just below 60,000 zloty ($15,700) a year.
The government said 2 million people will qualify for the benefit.
Here is the full story. There are also baby bounties in Poland, and policies seem to be increasingly youth-oriented. You can see this on the streets of Warsaw, which have more non-tourist young people than just about any other major city in Europe.
Tuesday assorted links
2. Pro-Brexit views are pulling more British voters into conservative views on redistribution.
4. “Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by 7.22 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to 1.07 percent. These effects vary significantly across countries.” Link here.
My podcast with Russ Roberts, EconTalker
Russ was the interviewer, he and I both think it is the best discussion we have had of eleven (!) interactions. Here is the link. Recommended.
An email I sent on negative nominal interest rates
Some of the negative nominal premium comes from the fact that you need these govt. securities for collateral, REPOs, clearinghouse margin, etc.
That doesn’t explain *the change*, but this point is often overlooked and it makes the puzzle somewhat less mysterious.
In part, negative nominal (and real) rates reflect a scarcity of good opportunities *at the margin*, but of course inframarginal opportunities may be fine.
If you wish to try a further de-weirding of this, it may reflect a truth about agency problems rather than absolute pessimism.
If capital is relatively plentiful, and talent is super-scarce, and you don’t know how to find marginal talent, you may be stuck just storing your money. But when talent and liquidity are combined — say Mark Zuckerberg — it will earn phenomenal returns, the other side of the coin.
In other words, this may all be a kind of correlate to income inequality and massive returns for founders…
…you have extra money, you really would like to lend it out for a real productive investment, rather than storing it at slightly negative nominal interest. [savings glut, a’la Softbank]
But whom to trust? Who is your local Mark Zuckerberg? You just don’t know. The uncle you might give it to will just rip you off and he is a dope anyway. [tech talent harder to spot because you can’t rely on traditional credentials]
If the agency wedge is larger, because the talented are already occupied for the most part, you might just have to store it.
This implies mega-returns for good talent spotters, which in fact we observe as of late.
Alexey Guzey on progress in the life sciences
I already linked to this piece, but wanted to recommend it again. I don’t agree with all of the points, but it has many excellent arguments, here is one excerpt from the opening section:
I think that the perception of stagnation in science – and in biology specifically – is basically fake news, driven by technological hedonic treadmill and nostalgia. We rapidly adapt to technological advances – however big they are – and we always idealize the past – however terrible it was.
I mean – we can just go to Wikipedia’s 2018 in science (a) and see how much progress we made last year:
- first bionic hand with a sense of touch that can be worn outside a laboratory
- development of a new 3D bioprinting technique, which allows the more accurate printing of soft tissue organs, such as lungs
- a method through which the human innate immune system may possibly be trained to more efficiently respond to diseases and infections
- a new form of biomaterial based delivery system for therapeutic drugs, which only release their cargo under certain physiological conditions, thereby potentially reducing drug side-effects in patients
- an announcement of human clinical trials, that will encompass the use of CRISPR technology to modify the T cells of patients with multiple myeloma, sarcoma and melanoma cancers, to allow the cells to more effectively combat the cancers, the first of their kind trials in the US
- a blood test (or liquid biopsy) that can detect eight common cancer tumors early. The new test, based on cancer-related DNA and proteins found in the blood, produced 70% positive results in the tumor-types studied in 1005 patients
- a method of turning skin cells into stem cells, with the use of CRISPR
- the creation of two monkey clones for the first time
- a paper which presents possible evidence that naked mole-rats do not face increased mortality risk due to aging
Doesn’t seem like much? Here’s the kicker: this is not 2018. This is January 2018.