Love Makes You Fat
Uri Gneezy and Jason Shafrin show that the more likely you are to get divorced or terminate your relationship the less likely you are to gain weight. We call this keeping one's options open.
The time is now 1234567890.
That is all.
Kicking the Stimulus
Smokers are three times more likely to kick the habit for at least six months when they are paid up to $750 (£520), a new study has found.
Nearly 900 General Electric workers took part in the test across 85 US sites. The results were published in the New England Journal of Medicine.
GE will launch a similar scheme in 2010 for all US employees, believing it will be cost-effective in the long term.
Buy a House, Get a Visa
Add Thomas Friedman to Tyler, myself, Lee Ohanian and others suggesting immigration as a way to alleviate the recession:
Leave it to a brainy Indian to come up with the cheapest and surest way to stimulate our economy: immigration.
Koreans,” said Shekhar Gupta, editor of The Indian Express newspaper.
“We will buy up all the subprime homes. We will work 18 hours a day to
pay for them. We will immediately improve your savings rate – no Indian
bank today has more than 2 percent nonperforming loans because not
paying your mortgage is considered shameful here. And we will start new
companies to create our own jobs and jobs for more Americans.”
Note that the multiplier on the “buy a house, get a visa” strategy would be much larger than any possible domestic multiplier since the money would come from outside the economy (and efficiency would improve as well.)
I think there would be considerable support among economists that immigration (buy a house, get a visa), a payroll tax cut and maintaining state and local funding would be reasonably good policies in this recession (albeit not necessarily sufficient) yet these policies seem to be the ones that the political system rejects out of hand. (See also Matt Yglesias here and here). Now, I can understand rejecting these policies as compared to doing nothing, ala a precautionary principle, but why these policies are rejected compared to taking a trillion dollar gamble is puzzling even to someone like myself schooled in public choice.
The Physics of BS
Here is Frank Tipler on macroeconomics:
accurate predictions means that they do not know what they are talking about. We
non-economists should realize this also, and realize that our leaders, who are
being advised by macroeconomists, haven’t got a clue where they are leading us.
Well ok I have some problems with macroeconomics too but considering many of Tipler's writings his criticisms of macroeconomics are rather amusing. e.g.
Singularity–God–is like. The laws of physics tell us that our universe
began in an initial singularity, and it will end in a final
singularity. The laws also tell us that ours is but one of an infinite
number of universes, all of which begin and end in a singularity. If we
look carefully at the collection of all the universes–this collection
is called the multiverse–we see that there is a third
singularity, at which the multiverse began. But physics shows us that
these three apparently distinct singularities are actually one
singularity. The Three are One.
There is one religion which
claims that God is a Trinity: Christianity. According to Christianity,
God consists of Three Persons: God the Father (the First Person), God
the Son (the Second Person), and God the Holy Ghost (the Third Person).
But there are not three Gods, only one God. Using physics to study the
structure of the Cosmological Singularity, we can see that indeed the
three “parts” of the Singularity can be distinguished by employing the
idea of personhood. In particular, physics can be used to show how it
is possible for a man–Jesus, according to Christianity–to actually be
the part of the Singularity that connects the Initial and Final
Singularities. So the Incarnation makes perfectly good sense from the
point of view of physics.
Jim Hamilton on Real Shocks
Hamilton hits the nail on the head:
…[I] disagree with some of my colleagues is in their presumption that wage or price rigidities are the core frictions that are responsible for producing the present situation. I have in my research instead stressed technological frictions. For example, when spending on cars abruptly falls, there is a physical, technological challenge with getting the specialized labor and capital formerly employed in manufacturing cars into some alternative activity. In my mind, it is a mistake to pretend that any federal program is capable of immediately re-employing those resources into an alternative, equally productive enterprise. More fundamentally, I have suggested that our present situation is as if someone had quite successfully sabotaged the basic functionality of our financial system. Until we once again have a financial sector that can successfully allocate credit to worthy projects, we're not possibly going to be able to produce as much in the way or real goods and services, no matter what the level of aggregate demand or stimulus package might be. In terms of the textbook Keynesian models that people play with, I'm suggesting that "potential" GDP growth for 2009:Q1– that growth rate which, if we try to exceed it by stimulating aggregate demand, we primarily just get more inflation– is in fact a negative number. I do not accept the proposition that there is a level of government spending– however large a number you choose to suggest– that will prevent the unemployment rate from rising above 8%. But I do believe that if the government borrows a sufficiently large amount, we will have to worry in a very concrete way about what will sustain the foreign demand for U.S. assets.
Hamilton continues by noting that such a position is quite compatible with spending to maintain state and local government expenditures with block grants, fundamental infrastructure spending on things like the electric grid and working hard to restore the financial sector.
But rushing through new government spending plans, just for the sake of spending? Count me off of that bandwagon.
Robin Williams and Alex Tabarrok
I was asked to do a radio interview with KPCC while I was at TED. The interview had just started and I’m talking about organ donation when into the studio walks Robin Williams! Naturally all chaos ensues and Robin takes over… but not before I manage to squeeze in an economics joke with Robin playing the straight man! Some kind of first there. I’m not sure Robin got the joke but I think this made the host laugh all the more. No one can out talk Robin, however, so he riffs on organ donation and fiscal stimulus for some time. Eventually Robin goes on his merry way and the host and I get back to organ donation, bounty hunters, voting and other cool stuff. An amazing experience for me. Real audio here (try here if that doesn’t work)
TED: A Brief Report So Far
Bill Gates, now a full-time philanthropist, gave a good talk. Especially interesting was the section on his efforts to improve education. Bill’s first multi-billion dollar efforts in this area were not very successful. It’s now clear he sees the problem as much more political than technological. He noted, for example, that a New York law actually prohibits data on student performance to be used in a teacher’s tenure decision. Amazingly, in some union contracts a principal is allowed to enter a teacher’s classroom for the purpose of evaluation only once in a year and the teacher must be given advance notice! This is much harder hitting stuff than Bill has been saying over the past few years although he still isn’t talking about vouchers and competition which is a must to improve the education system.
The difficulties of a housing stimulus
Ed Olsen, one of the nation's foremost housing experts, points out that it's much harder to stimulate housing than many people think because you have to take into account the rental market.
The primary effect of many proposals directed at the housing market would be to decrease the demand for rental units by about the same amount as they would increase the demand for owner-occupied units. This would be the effect of the proposed tax credits or loans at below-market interest rates to new homebuyers.
…The impact of preventing foreclosures on housing prices is overstated for the same reason. The overwhelming majority of families who default on their mortgages move to another unit that they do not share with others. Therefore, preventing foreclosures would have little effect on the total demand for dwelling units and hence little overall effect on market prices.
…Subprime mortgages did induce some people to buy houses beyond their means, and foreclosures would decrease the demand for the types of houses bought by these people. This would decrease the prices of similar houses. However, when they default on their mortgages, the families involved move to more modest houses or apartments, thereby increasing the demand for other types of units in other locations and the prices of units of these types. Preventing foreclosures would lead to higher prices for some properties and lower prices for others.
Read the whole thing (doc).
Sentence of the Day
deaths, twice as high as deaths due to malaria.
From Chris Blattman. By my calculations (here and here) road traffic accidents account for about 1.68% of deaths in the United States so there is certainly room for improvement in low-income countries although it would be important to know whether it is the driving, the roads, or the health care most amenable to such improvement.
Political Credit Cycles
This paper integrates theories of political budget cycles with theories of tactical electoral redistribution to test for political capture in a novel way. Studying banks in India, I find that government-owned bank lending tracks the electoral cycle, with agricultural credit increasing by 5-10 percentage points in an election year. There is significant cross-sectional targeting, with large increases in districts in which the election is particularly close. This targeting does not occur in non-election years, or in private bank lending. I show capture is costly: elections affect loan repayment, and election year credit booms do not measurably affect agricultural output.
The Difficulties of Stimulus Policy
60 Minutes had a moving piece on Sunday about Wilmington, Ohio where thousands of people are losing their jobs due to the closure of the town's largest employer, DHL. Many people had worked at the air distribution center for decades and through no fault of their own were losing their jobs, their health insurance and in one of the hardest losses of all, their community. Barack Obama and John McCain both talked about Wilmington in their campaigns and yet for all their talk it's clear that neither monetary nor fiscal stimulus can do much for Wilmington.
Falling World Wide Trade
One of the things that I do find very disturbing about this recession is that it is worldwide. World trade may fall this year for the first time since 1982. As I argued earlier, the problem goes beyond any credit crunch, which according to the story below has been solved for trade. The problem is a lack of demand. Here is more frightening news on the trade front.
Freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October.
Trade data from Asia's export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets.
Korea's exports fell 30pc in January compared to a year earlier. Exports have slumped 42pc in Taiwan and 27pc in Japan, according to the most recent monthly data. Even China has now started to see an outright contraction in shipments, led by steel, electronics and textiles.A report by ING yesterday said shipping activity at US ports has suddenly dived. Outbound traffic from Long Beach and Los Angeles, America's two top ports, has fallen by 18pc year-on-year, a far more serious decline than anything seen in recent recessions.
"This is no regular cycle slowdown, but a complete collapse in foreign demand," said Lindsay Coburn, ING's trade consultant.Idle ships are now stretched in rows outside Singapore's harbour, creating an eerie silhouette like a vast naval fleet at anchor. Shipping experts note the number of vessels moving around seem unusually high in the water, indicating low cargoes.
It became difficult for the shippers to obtain routine letters of credit at the height of financial crisis over the autumn, causing goods to pile up at ports even though there was a willing buyer at the other end. Analysts say this problem has been resolved, but the shipping industry has since been swamped by the global trade contraction.
Virtual or and Real
A banker has absconded with 86 billion from Dynasty Banking. Dynasty Banking? Is that an obscure Icelandic bank? Almost, it's a bank in the massive world of Eve Online.
Two years ago in a post called The Future of Macroeconomics I wrote the following:
time ever, macro-economists will be able to do experiments. I predict
that we will see some very interesting experiments in the near future.
The massive theft from Dynasty Banking is creating a bank run. There is no FDIC in Eve Online but other banks have agreed to lend Dynasty cash if it is needed – no doubt they fear contagion. No word yet on whether fiscal or monetary stimulus is planned but I will watch the experiment with interest.
If this is not enough to boggle your mind, Eve Online is in fact an Icelandic firm! Which explains why the money in Eve is called ISK, also the code for the Iceland Krona. To bring the story full circle the Icelandic banking collapse is causing problems for the developer.
"The present currency restrictions are putting us in a straitjacket.
We are in talks with the government, but if we can't let capital in, we
might be compelled to leave Iceland, even though this would be against
our wishes."
EVE currently has around 300K subscribers.
Gudmundsson's comments come after those of CCP CEO Hilmar Petursson,
who told Edge in October following the banking collapse, "I’m fortunate
that CCP has hardly been affected by the economic crisis here. We now
have to take advantage of our status as a global company and maintain
our diversified banking relationships."
CCP also has offices in Atlanta and Shanghai.
Finally, in other news, we have this:
Royal Khanid Navy Grand Admiral Zidares Khanid this morning released a
statement claiming that Khanid Kingdom forces yesterday attacked
thirty-three separate Blood Raider Covenant targets – ranging from
unmanned installations to fully-defended outposts – in what the release
terms “an effort to strike a blow against the spreading blight of
willful heresy.”
Just thought you would want to know. Does your head hurt yet?
Thanks to Roger Avalos for the pointer.
What instead? 2
Matt Ygelsias asks what’s the
stimulus-skeptics’ alternative prescription? Tyler offers his recommendations below. I'm somewhat less of a skeptic about fiscal policy than Tyler – there is a good case for moving up useful infrastructure spending (both public and private) today – but I agree with Tyler that it is too early to think that monetary policy is ineffective. M1 is rising sharply, M2 is up. Monetary policy works with lags. As to what to do instead I have offered a number of possibilities including:
1) Investment Tax Credit Unlike traditional fiscal policy an investment tax credit cannot be
fully crowded out and it works best when it is expected to be
temporary. Cuts in income taxes stimulate the least when they are
expected to be temporary. But in contrast, an investment tax credit
stimulates the most when it is expected to be temporary because a temporary
credit must be used now or lost while a permanent credit gives you the
option to wait.
2) A supply side stimulus: The IRS knows how much income that each taxpayer reported last
year. So let's cut everyone's marginal tax rate based on last year's
income. In other words, suppose that last year Joe earned $66,520
which puts him in a 25% tax bracket. Joe's tax schedule this year will
be exactly the same as last year except for every dollar earned above
$66,520 the tax rate drops
to 15%. We do this for all
taxpayers so that each taxpayer has their own schedule and for each
taxpayer there is a decreasing marginal tax rate.Note that this plan increases the incentive to work and it doesn't
increase the deficit. In fact, the Tabarrok plan increases tax
revenues! The key is a marginal tax cut with a different margin for
every taxpayer based upon last year's return.
3). A cut in the payroll tax ala Singapore. If employment is down reduce the cost of employing labor. This policy has lot to recommend it because unlike a fiscal stimulus it lets the reallocation process work towards its long run equilibrium. A construction stimulus, for example, pushes people into construction (or keeps them there) when perhaps labor could ultimately be more productive in other sectors of the economy. The payroll tax cut enhances this reallocation effort it doesn't impede it.
4) Don't Panic. This is the policy that has cured most recessions. The do anything and do it now mindset feeds panic. I do think this recession will be longer than average and quite deep, it is a concern that it is worldwide. But recessions are normal and we have unemployment insurance and other assistance programs to help people through tough times. The economy will recover and its very possible to make things worse by trying to make things better.