Month: August 2021
The subtitle is “Market Monetarism, the Great Recession, and the Future of Monetary Policy.” I just got my copy, self-recommending of course. In fact, hard to think of a better example of “self-recommending” than this one.
You can buy it here.
1. Rating the menus.
4. Brazilian criminal group ties hostages to getaway cars. That was to deter gunfire from the police.
Then Hurricane Ida hit, and the 911 call center crashed, failing its first major test. Calls for help didn’t go through. The center was offline for 13 hours on Monday. The Orleans Parish Communication District, which runs the dispatch center, was forced to take to Facebook to tell people that if they had an emergency, they should walk to a nearby fire station or flag down a police officer to report it.
“Our technology is antiquated,” Tyrell Morris, the district’s executive director, said Monday.
Here is the full story, at least the levees did hold…
Jeffrey Clemens has an excellent piece summarizing his work on the economics of opium production and foreign policy:
From the perspective of Eurasian heroin traffickers, raw opium accounts for a small share of the cost of reaching either their middle- or high-income consumers. Most of the cost is driven by the expenses and risks associated with trafficking itself—bribery, money laundering, document forgery, and, when attempts to evade the authorities fail, violence. As a result, traffickers’ demand for the opium produced by Afghan farmers is inelastic, meaning that even a substantial change in the prices required by farmers will have a modest effect on the quantity the traffickers choose to acquire. This meant that the government’s efforts to reduce poppy cultivation had a greater effect on prices than on the quantity produced—the government drove up opium prices without reducing the quantity demanded by and produced for traffickers.
While overall opium production did not decline, it did undergo an important shift. Predictably, opium production shifted out of the government’s most tightly held provinces and toward provinces in which the government struggled to exert control. This stemmed from a straightforward issue of targeting and state capacity. Prohibitions can only be enforced on territory that the state governs. As a result, opium suppression efforts reduced poppy cultivation in provinces in which the Taliban had historically been weak. Before the increase in counternarcotics spending, poppy cultivation was prevalent in districts across the country. By the late 2000s, however, it had consolidated in areas dominated by the Taliban in the country’s southwest provinces, in particular in Helmand province, which regularly accounts for half of the land cultivated with opium poppies.
Thus, not only did the war on opium fail to reduce opium production it increased the strength of the Taliban. There are general lessons:
When a policy impinges on people’s livelihoods, it risks alienating the very population on whose loyalty the government relies. When state capacity is low, pursuing such policies is thus likely to be unwise. And it is precisely those who oppose the government’s authority, and have the means to resist it, who will tend to thrive in illicit markets. By creating such markets, then, prohibition policies can create economic environments that enrich the government’s adversaries. Similar dynamics have long been at play in the conflict between the Colombian government, drug cartels, and assorted paramilitary groups, where US aid has historically been linked to efforts to suppress cocaine production
…Economic prohibitions can thus have the unintended consequence of enriching the government’s opponents. When a state is weak, it should thus forego, or at least deemphasize, the imposition of economic restrictions. The ability to enforce prohibitions is a luxury reserved for stronger and more stable regimes.
This piece and the underlying research make for excellent undergraduate teaching material as it show the power of simple economic principles to understand the world.
Addendum: On the last point about weak states foregoing the imposition of economic restrictions, see also my piece with Shruti Rajagopalan on Premature Imitation.
Picture Credit: “Poppy Field (Chollerford)” by wazimu0 is licensed with CC BY 2.0. To view a copy of this license, visit https://creativecommons.org/licenses/by/2.0/
From Arjun Narayan:
Loyal reader here and I’ve been pondering an altered version of your post [the other day] -You have the power to grant 100% more capital (that they deployed in their lifetime) to a person or institution who prematurely ran out of capital too soon. Who do you pick?
It’s worth considering the counterfactual: Elon Musk almost ran out of money in 2008 and was bailed out by Daimler. we would be far worse off on a few dimensions (lithium ion battery production, but also the urgency with which every carmaker is now attacking the transportation electrification problem). Who else should we go back in time and similarly bail out?
My answer is the companies that built the NYC subway which went bankrupt – the BMT, IRT, and IND. After the city takeover in ~1940, construction slowed over a generation, and no infrastructure has been built since. It’s unclear if infrastructure will ever be built in NYC again. It’s clear to me that the only time to build was right then and there, and we should have “overbuilt” to the maximum extent possible when we could.
And in terms of returns to society, what is the value of 10% more efficient subway service (faster/longer/more frequent)? 20? 50%? We could absorb more population (NIMBYs notwithstanding), and as the largest city in the US, the agglomeration effect means it is most impactful here.
I am very curious what your answer would be!
I do not have a better answer than that, unless you start getting into military scenarios. If you are allowed to consider cyclical scenarios, how about more money to bail out U.S. banks in the 1929-1932 period? More funds to limit the German deflation before Hitler, or alternatively to bail out the Weimar government so hyperinflation and later social collapse does not come? But I take those possibilities as beyond the initial question.
Could a cash infusion alone have kept Intel active and successful in the high-quality chips market? Somehow I doubt that. More money for Novavax in 2020-21 as a contender? That could have helped the rest of the world a good deal, given how slow they have been to convert their very important science into an actual product.
Thus, to analysts, picking one such meta-analysis may feel as hard as picking a single “best study.” This paper responds by taking the meta-analysis another step, estimating a meta-analysis (or mixture distribution) of six meta-analyses. The baseline model yields a central VSL of $7.0m, with a 90% confidence interval of $2.4m to $11.2m. The provided code allows users to easily change subjective weights on the studies, add new studies, or change adjustments for income, inflation, and latency.
From Benjamin Schoefer, bravo:
I propose a financial channel of wage rigidity. In recessions, rather than propping up marginal (new hires’) costs of labor, rigid average wages squeeze cash flows, forcing firms to cut hiring due to financial constraints. Indeed, empirical cash flows and profits would turn acyclical if wages were only moderately more procyclical. I study this channel in a search and matching model with financial constraints and rigid wages among incumbent workers, while new hires’ wages are flexible. Individually, each feature generates no amplification. By contrast, their interaction can account for much of the empirical labor market fluctuations—breaking the neutrality of incumbents’ wages for hiring, and showing that financial amplification of business cycles requires wage rigidity.
The piece is titled “The Financial Channel of Wage Rigidity.” One of the best macro papers! It puts all of the pieces together, including the finance channel, and the difference between incumbent and new workers, identifying the relevant counterfactuals, and is not content to simply say “wage rigidity.”
The subtitle is Constitutionalism in the American Revolution, and of course self-recommending. Here is one excerpt:
The breadth and depth of popular interest in the Constitution in 1787-1788 was remarkable. The towns of Massachusetts, for example, elected 370 delegates to the state’s ratifying convention, of whom 364 attended. Most were eager to meet and discuss the Constitution. It took six days for the delegates from Bath, Maine (then part of Massachusetts), to make their way south across rivers and through snow to Boston. The people of Massachusetts believed they were involved, as the little town of Oakham told its delegates, in deciding an issue of “the greatest importance that ever came before any Class of Men on this Earth.”
Many expected the electoral college to work as a nominating body in which no one normally would get a majority of electoral votes; therefore, most elections would take place in the House of Representatives among the top five candidates, with each state’s congressional delegation voting as a unit.
You can buy it here.
Of course this question is motivated by the passing of the great Lee Perry. Who else might make such an exclusive list? Note here we are not talking about whether you like the style, the melodies, or whatever. Did the creator come up with a fundamentally new way of organizing our musical universe? (Rolling Stones, Paul Simon, ABBA, many other notables don’t come close here, despite their considerable merits.) Here is the list off the top of my head:
Sun Ra (Monk I count as pre-1960?)
Hendrix and Led Zeppelin?
Rap and electronica, respectively, with arguments as to where the individual credit should go
Kevin Shields/My Bloody Valentine
And of course Lee Perry
Who cares what you like? I would say study them to learn music!
Who else? Kurt Cobain? The Byrds? Someone from MPB? Helmut Lachenmann? Sunn O)))? Others? Anyone else from psychedelic music? Post-1960 Stockhausen and Cage (or did they bloom earlier?)? Scelsi? Can? Bill Evans? Astral Weeks? What else?
The Jamaican musical giant has passed away at age 85, he is for me one of the all-time musical greats and the two times I saw him in concert (and once with Mad Professor) remain some of my most memorable music experiences.
I still listen to his stuff regularly. On top of everything else, he was a completely untutored technological genius, coming out of nowhere…
6. And Sokolov playing Partita #1. The only version that might stand up to Glenn Gould’s?
An otherwise dull new government report on incarceration contains a startling fact: Hispanics are slightly less likely to be jailed than whites. It’s one of multiple unappreciated signs of fading disparities between Hispanics and non-Hispanic whites in the criminal justice system, a phenomenon with substantial implications both for the future of reform and electoral politics.
To be clear this is about jails not prisons where there are still differences but those differences are also rapidly converging. Hispanics are also joining police forces in much higher numbers.
Parallel changes appear in who the criminal justice system employs. From 1997 to 2016, the proportion of police officers who were African-American was stable, whereas the proportion who were Hispanic increased 61%. This helps explain why a June 2021 Gallup poll found that the proportion of Hispanics expressing “a lot” or “a great deal” of trust in police was 49%, almost as high as whites (56%), and far greater than that of African-Americans (27%). Hispanic views on policing and crime may also be similar to whites because the two groups rate of being violent crime victims is almost identical (21.3 per thousand persons for Hispanics, 21.0 for whites).
Maybe systemic racism isn’t so systemic after all.
…in an era of widespread despair about criminal justice reform and racism in America more generally, the declining disparities between Hispanics and non-Hispanic whites merit reflection. A generation ago, the idea that such disparities would dramatically shrink or even disappear within the criminal justice system would have sounded naive. The fading of disparities should inspire reformers to even greater heights and also reduce cynicism about the alleged intractability of prejudice within American society.
Many individuals travel between countries as part of their professional routines. How do they perform during those short trips abroad? To begin to answer this question, I analyzed the outcomes of over 5 million chess games played around the world. Importantly, tournament chess provides a clean setting in which location-dependent factors are mostly irrelevant; the audiences are quiet and the referees make hardly any judgments. Controlling for differences in chess skills, I found enhanced performance among players who were competing outside of their home countries. This finding was robust to additional controls such as age, sex, and skill momentum or game practice, and to the inclusion of individual or country fixed effects. This advantage, an approximately 2% increase in game outcome, suggests that traveling has a positive effect on performance.
We develop a framework to theoretically and empirically analyze the fluctuations of the aggregate stock market. Households allocate capital to institutions, which are fairly constrained, for example operating with a mandate to maintain a fixed equity share or with moderate scope for variation in response to changing market conditions. As a result, the price elasticity of demand of the aggregate stock market is small, and flows in and out of the stock market have large impacts on prices.
Using the recent method of granular instrumental variables, we find that investing $1 in the stock market increases the market’s aggregate value by about $5. We also develop a new measure of capital flows into the market, consistent with our theory. We relate it to prices, macroeconomic variables, and survey expectations of returns. We analyze how key parts of macro-finance change if markets are inelastic. We show how general equilibrium models and pricing kernels can be generalized to incorporate flows, which makes them amenable to use in more realistic macroeconomic models and to policy analysis. Our framework allows us to give a dynamic economic structure to old and recent datasets comprising holdings and flows in various segments of the market. The mystery of apparently random movements of the stock market, hard to link to fundamentals, is replaced by the more manageable problem of understanding the determinants of flows in inelastic markets. We delineate a research agenda that can explore a number of questions raised by this analysis, and might lead to a more concrete understanding of the origins of financial fluctuations across markets.
Here is the link, by Xavier Gabaix and Ralph S.J. Koijen. I worry that the hypothesis implies excess returns from monitoring the trading behavior of others (or even yourself?), but that’s just me. It is in any case one of the more interesting (and ambitious) pieces in finance over the last few years.