Assorted links

by  Tyler Cowen

1. Netflix revenue vs. Blockbuster revenue, graph, sorry folks it is in nominal terms!

2. Is government about the supply of public goods?

3. “It is a science fair project, but it turned out very well for me.”  And he has a blog, good post on the Apollo program.

4. Dominic Lawson on chess.

5. How is China doing as an innovator?

6. Profitable biases of NBA referees; interesting hypothesis, although I am not convinced the referees are the active factor.

Is the future of the European periphery a bright one?

by  Tyler Cowen in

Hugo, a loyal MR reader, asks:

…based on this sentence: “I am pessimistic about the survival of the full eurozone, which is not the same as being pessimistic about Europe”

What’s the non-pessimistic, post-Eurozone scenario?

Wouldn’t that leave Greece and Portugal and maybe a couple of others as the Euro equivalent of the US Rust Belt, but with no federal support & much-reduced ability for people in those countries to migrate to areas where there is job growth?

Greece has made very good progress on cutting spending and limiting patronage (where is the Cato study?), although the whole package probably can’t work in such a deflationary environment, not to mention the riots in the streets.  They’ll probably have to give back at least a third of what they have done on the reform side, but a lot of inefficiency has been rooted out for good.  The country doesn’t have to have a miserable future, just look at recent Turkish growth.  Of course Greece needs to default (again, and less selectively) and that will require in the short run yet more spending austerity because the borrowing still is financing their current budget.

Portugal made significant economic gains before joining the eurozone.  Its manufacturing probably won’t come back but old people like the place and that will continue to help them as Europe ages.  They can sell real estate and vacations and produce services and a bit of agriculture.  Neither Greece nor Portugal faces much risk from Chinese or Asian competition; those “Rustbelt” problems lie largely in the past and have already hit them and been absorbed.

EU subsidies are not the path to wealth and in part they lock those economies into low-productivity growth ag. sectors; that’s a mixed blessing.  And who says a eurozone implosion would cause those subsidies to go away?  Northern Europe already has allocated that money and perhaps wishes to retain influence over their neighbors, maybe all the more in a volatile environment.

Portugal is not reaping major gains from the right of its citizens to migrate to Germany and besides maybe that won’t go away.  Schengen could fail and Germany still might prefer Portuguese immigrants to the relevant alternatives.

Currency depreciations of 40 percent or more won’t hurt Portugal or Greece!

By no means am I an extreme optimist about these countries, but I think they will do OK, at least once they get past the short run.  Why shouldn’t they?  Human capital levels are not superlative but they are entirely acceptable for mid-level European existence and the climate is superb in both places.  All they have to do is wave a magic wand and imagine themselves outside the eurozone, and outside their current fiscal shortfalls, just don’t ask me how they get there.

Sentences to ponder

by  Tyler Cowen in

… in America’s system of gridlock-based government priority is now on buck passing rather than achieving policy goals. Democrats are putting a higher priority on a desire to get Republicans to vote for tax increases than they are on a desire to have taxes be higher. Republicans, conversely, are trying to avoid voting for tax increases rather than trying to prevent tax increases from taking place.

That is from Matt.  I wonder what underlying model of politics this is evidence for.  Could it be that the real rewards from office holding come from one’s interest groups, later on?  But why is the reward so closely tied to measures of loyalty rather than actual results?  Are the external interest groups such poor monitors?  If so, that would help explain why the observed Beckerian political bargains are so inefficient and so subject to polarized bickering.

I agree with this post of Matt’s too, 2008 was worse than we had thought.  Now let’s apply some (finite) backward induction.  How about 2007?  Was that year worse than we thought?  2006 anyone?  I think of 2008 and 2009 as when the crumminess of some of the preceding years was revealed as common knowledge.  The real mistakes of the Commerce Dept. were about the previous years and that is only beginning to sink in.

Philip Tetlock requests your help

by  Tyler Cowen in

He is one of the most important social scientists working today, and he requests that I post this appeal:

Prediction markets can harness the “wisdom of crowds” to solve problems, develop products, and make forecasts. These systems typically treat collective intelligence as a commodity to be mined, not a resource that can be grown and improved. That’s about to change.

Starting in mid-2011, five teams will compete in a U.S.-government-sponsored forecasting tournament. Each team will develop its own tools for harnessing and improving collective intelligence and will be judged on how well its forecasters predict major trends and events around the world over the next four years.

The Good Judgment Team, based in the University of Pennsylvania and the University of California Berkeley, will be one of the five teams competing – and we’d like you to consider joining our team as a forecaster. If you’re willing to experiment with ways to improve your forecasting ability and if being part of cutting-edge scientific research appeals to you, then we want your help.

We can promise you the chance to: (1) learn about yourself (your skill in predicting – and your skill in becoming more accurate over time as you learn from feedback and/or special training exercises); (2) contribute to cutting-edge scientific work on both individual-level factors that promote or inhibit accuracy and group- or team-level factors that contribute to accuracy; and (3) help us distinguish better from worse approaches to generating forecasts of importance to national security, global affairs, and economics.

There is more at the link and they even offer a small honorarium.

Do exogenous increases in the # of children lower child quality?

by  Tyler Cowen in

Maybe not (in which I channel Bryan Caplan):

So what does it mean for an older brother when Mom and Dad come home for the hospital with twins? What’s it like to be the younger sister of twins?

First, you get less computer time. Frenette finds that, even after controlling for family income, education, and myriad other factors, having twin siblings reduces the number of computers per child by 14.1 percentage points.

Second, you are less likely to be enrolled in private school — youth are 4 percentage points less likely to in private school when there are twins in the family, all else being equal.

Third, parents are less likely to save money for their children’s post-secondary education in families with twins.

And the impact of fewer computers, less private school, and less saving for post-secondary education on children’s academic performance is…not much.

Fifteen year olds from families with twins do no worse than other children in international standardized assessments of reading achievement. If anything, they appear to do slightly better — but there are too few families with twins in Frenette’s sample to know whether the difference is statistically significant.

As a parent, I find these results encouraging. Even if your resources are stretched, and you can’t do everything you’ve planned for your kids, they might turn out just fine anyways.

The possibly gated paper is here and here.  For the pointer I thank Michelle Dawson.

Sports number markets in everything what would Oliver Williamson say?

by  Tyler Cowen in

Pitcher Roger Clemens gave slugging first baseman Carlos Delgado a Rolex, valued at $20,000, for uniform #21.  Former NBA player Vin Baker once bought his number from another player for the relative bargain price of $10,000.   In 2007, NFL player Jason Simmons used the opportunity to do a good deed, giving new teammate Ahman Green #30 if Green agreed to pay the down payment on a home for a disadvantaged single-parent family.

Former NFL punter Jeff Feagles is one of the few who has been able to sell a number twice — although with mixed results.  His first transaction, with quarterback Eli Manning, went smoothly, and Feagles got a family vacation to Florida out of the deal.  His second one, however, did not go so well.  When wide receiver Plaxico Burress joined the New York Giants in 2005, he bought #18 off Feagles in exchange for an outdoor kitchen.  But as of August 2010, Feagles had not received the kitchen. (Apparently, this was unrelated to the fact that by this point, Burress was in prison for accidentally shooting himself in the leg at a New York City night club.)

There is more to the article here, and my Dan Lewis source is here.  Of course, given that the players are now on the same team, these are more like repeated exchanges than at may first appear.

Are chess players getting better over time?

by  Tyler Cowen in

Mostly.  Kenneth W. Regan and Guy McC. Haworth analyze games move-for-move, using chess-playing computer programs.  The result:

…we conclude that there has been little or no ‘inflation’ in ratings over time—if anything there has been deflation. This runs counter to conventional wisdom, but is predicted by population models on which rating systems have been based…The results also support a no answer to question 2. In the 1970’s there were only two players with ratings over 2700, namely Bobby Fischer and Anatoly Karpov, and there were years as late as 1981 when no one had a rating over 2700 (see [Wee00]). In the past decade there have usually been thirty or more players with such ratings. Thus lack of inflation implies that those players are better than all but Fischer and Karpov were.

Real vs. nominal dollars for discretionary spending

by  Tyler Cowen

Matt Yglesias tweets:

Did every libertarian in America suffer mass amnesia about the difference between real and nominal dollars yesterday?

Others complain as well.  Keep in mind a few things:

1. The spending forecast itself is made in terms of nominal dollars and that is what I, and others, reported.  Bloggers report nominal dollar magnitudes all the time, without pretending to be tricking anybody.  Reporting real dollars would mix in the base information with someone’s forecast of future expected inflation and in general that is not considered to be more enlightening, all the more during a period where people disagree radically about inflation forecasts.  Graph viewers can make their own real vs. nominal adjustments ex post, as indeed they are used to doing.

2. For the Keynesian argument, it is often nominal dollars which matter most.  And also, in Keynesian terms, it is the reaction of the Fed which will be of paramount importance.  Even a not very potent version of QEIII could easily undo whatever mild contractionary effects this spending change might have.

3. Inflationary pressures are not very strong and arguably there are deflationary pressures.  That’s bad, but it means the nominal is not going to be so far off from the real.

4. On top of all that, it is far, far from obvious that those specified spending changes are actually going to take place.  The tendency is for promised spending slowdowns to be ignored or reversed.

Some MR commentators raise the issue of per capita measures of discretionary spending and whether they will decline.  It might be nice to have growing public sector per capita quality with growing population and growing wealth.  But if the good in question is a public good (and is it not supposed to be?), adding extra people to the mix, ceteris paribus with no spending boost, is compatible with those additional people getting more or less the same services as the previous consumers.  Falling per capita expenditures on public goods, if it is not too big a fall, still means a greater real quantity of public goods enjoyed, given non-rivalry of consumption.

The correct response to all this information about future projected spending is still “I guess that’s not much of a spending cut, is it?”

By the way, entitlement reform is MIA.

Instead what I see is a lot of people adding up the entire fiscal gap — ignoring that the stimulus is ending anyway and was going to end anyway — and proclaiming that Tea Party extortion is causing the economic heavens to fall.  Ross Douthat nails it.

Here’s a big “ouch” for some of you:

Sixty five percent approve of deal’s spending cuts. But it gets worse. Of the 30 percent who disapprove, 13 percent think the cuts haven’t gotten far enough, and only 15 percent think the cuts go too far. One sixth of Americans agree with the liberal argument about the deal.

The final effects of the deal are hardly a Ron Paul world and so we are seeing massive exaggeration, driven by the fallacies of mood affiliation, excess sensitivity to social information (“who won the showdown?”) and us vs. them thinking.  What we have is a weak, vacillating postponement of all the hard decisions.  In hindsight, the decision to allow no revenue increases will be seen as a huge blunder, by conservatives most of all.

Why I am more pessimistic about the euro than are most people

by  Tyler Cowen in

Here is Willem Buiter, trying to make a case that the euro will survive.  It’s an interesting piece, but in contrast I have focused my attention on two issues:

1. In my view, the survival of the eurozone is not simply a matter of adding up the current solvency deficits and comparing them to the available quantity of aid.  Rather I see the aid recipients as leaky vessels.  Pumping more money into those countries won’t recapitalize their banking systems.  In fact, once leaving the euro is seen as an option, those banking systems will systematically lose both deposits and capital.  Depositors are afraid to wake up one morning and have lost their euros.  The banks in those countries can’t ever be sound, at least not until something gives.

Imagine if the FDIC weakened or eliminated its deposit guarantees to regional banks, once those regions started experiencing some economic troubles.  That’s the parallel situation in Europe.  If sovereign debt isn’t secure, how can the guarantees of those sovereign states to their banking systems be secure?  And then why should non-guaranteed banking systems recover?

2. The best shot at patchwork regulation is to introduce a common resolution authority and a common bank deposit guarantee mechanism for the eurozone; Buiter discusses a related option.  But ultimately that leads to full fiscal union or at least a eurobond.  If you guarantee all of a country’s banking deposits, you are creating/guaranteeing a riskless security for that country.  In the limiting case, imagine the government itself opening a bank and suddenly having guaranteed liabilities.  You may or may not favor eurobonds and fiscal union, but I feel on safe ground predicting that they won’t happen.  Nothing in the partial bailouts up until now has led me to change or weaken that opinion.

I do not so much see people denying #1 or #2, but I also do not see them starting with these as the main problems to solve.  And thus I am more pessimistic than they are.  But I am pessimistic about the survival of the full eurozone, which is not the same as being pessimistic about Europe.  By the way, the latest news update is here and it isn’t good.

Sentences to ponder

by  Tyler Cowen in

Here is Nancy Youssef, via Kevin Drum:

Rather than cutting $400 billion in defense spending through 2023, as President Barack Obama had proposed in April, the current debt proposal trims $350 billion through 2024, effectively giving the Pentagon $50 billion more than it had been expecting over the next decade.

With the wars in Iraq and Afghanistan winding down, experts said, the overall change in defense spending practices could be minimal: Instead of cuts, the Pentagon merely could face slower growth.

….”This is a good deal for defense when you probe under the numbers,” said Lawrence Korb, a defense expert at the Center for American Progress, a left-leaning research center. “It’s better than what the Defense Department was expecting.”

Hey, maybe they’re not really cutting spending after all!