How to become sophisticated?
J., a nascent MR reader, requests:
Which journals, magazines and blogs should a 15yo read in order to be considered a widely sophisticated and educated person 20 years later (not necessarily to show off or to impress others but for one's own good feeling)?
I do not have a concrete answer. When I was 12-13, I was very interested in chess and not so interested in culturally sophisticated outputs, unless you count the Beatles and jazz guitar and baseball. I am glad that I spent most of my time then reading in those areas because I cared about them deeply at the time. Those investments will then help us learn other areas, so it is learning about how to learn. At age 21 it was all about German Romanticism for me, and at 22 analytic philosophy. Find grooves, and push on them until your ardor abates. Until the very end, there is always time to learn more areas, and always a very large number of areas one does not know at all.
It has become a cliche, but Samuel Johnson was close to the truth when he wrote:
"A man should read as his fancy takes him, for what he reads as a chore will do him little good."
I don't recommend that attitude for mastering technical subjects, but for general sophistication it is right on. The most sophisticated person is someone who really loves an area and has pursued it, and that's also the best magnet for attracting interested and interesting others. On related topics, here is Modeled Behavior and here is Robin Hanson.
The silent bank run continues
Ireland’s central bank increased its provision of emergency liquidity support to its domestic banking system in December, as the country’s financial crisis intensified and bank deposit withdrawals rose.
Irish banks have become increasingly dependent on central bank support to fund their balance sheets, as they lose business and retail deposits and are unable to refinance maturing bank borrowings.
The article is here. This is one reason why the status quo cannot last forever, unless you think Ireland has the political will to transition to not having its own banking system. If you're a business or even Irish upper middle class, why put most of your money in an Irish bank?
Assorted links
1. Virginia isn't the South any more.
2. Where people buy their hair.
3. Ezra considers issues of mandates and regulations (contra my earlier claim of "underreported").
4. Unemployment rates by profession.
5. Pecuniary externalities in Berlin lead to non-pecuniary externalities in Berlin: "…wealthy newcomers to districts like the now fashionable Prenzlauer Berg have been treated to an often weekly ritual of car torching."
6. Did the hard core left disappear from the blogosphere? If so, why? I believe this post is quite wrong but it is thoughtful and interesting and worth the read.
Sumner and Krugman on zero MP workers
Scott's post is here, Krugman's is here. (My first post on the topic is here, my last post here). Let's start with Scott, excerpt:
This post by Stephen Gordon shows US employment in 2010:3 falling about 5% below its 2008:1 peak, while output seems to have declined only about 0.7%. This is what Cowen finds puzzling.
But I don’t see any puzzle at all. If employment didn’t change, I’d expect US output to grow at about 2% a year, which is the trend rate of productivity growth. Because we are looking at a two and a half year period, you’d expect output to grow roughly 5% with stable employment. Now assume that employment actually fell 5%. If the workers who lost jobs were similar to those who remained employed, I’d expect output to be flat over that 2.5 year period. Because output fell slightly, it seems like the workers who lost jobs were slightly more productive than those who remain employed.
Do I believe this? No, for several reasons I think they were less skilled than those who remained employed. Labor productivity growth (assuming we were at full employment) probably slowed in the most recent 2.5 years, as investment in new capital declined. Measured productivity continued to rise briskly, partly because technological progress continues in good times and bad, and partly because those workers still employed are somewhat higher skilled, or perhaps are trying harder in fear of losing their own jobs. So Tyler is probably right that those workers who lost their jobs have a lower than average marginal product. I just don’t see why zero is the natural starting point for consideration of the issue, as you only get that number by making some fairly extreme assumptions about technological progress coming to a screeching halt after 2008:
A few points:
1. The claim is that some workers have zero marginal product (net of employment costs), not all workers (as Krugman inexplicably ponders for two full paragraphs), and not even all unemployed workers. Just as a hypothetical example, if unemployment is 9.5 percent and the natural rate is 5.5 and zero MP helps account for half of that difference, that's two percent of the labor force at zero MP. Try hiring labor for a while and see how crazy that sounds.
2. Zero MP is a property which may hold in an AS-AD equilibrium, it is not a substitute for an AS-AD view. Krugman mischaracterizes the hypothesis here, by identifying it with "AD denialism." In my post which Krugman links to (and indeed for years), I've made it clear that demand matters in any coherent account of the equilibrium.
Oddly, Krugman himself stated one of the coherent versions of the Zero MP view in July 2010, and then he considered it possible and appropriately, he expressed uncertainty about what might be going on.
3. The Zero MP hypothesis is simply another way of talking about "labor hoarding," a well-known and time-honored idea, except that the labor is not in fact hoarded. It doesn't encounter strange paradoxes and it is more intuitive than when the labor is hoarded (which appears to violate first-order conditions). There is plenty of very specific and indeed striking evidence that the "previously hoarded labor" isn't being hoarded any more. That same link implies that Krugman's invocation of 1983 is a red herring and probably not a good instance for finding many zero MP workers. The "oughties" job market differs in a number of other "real" ways from the 1980s, including the fact that we've had no net job growth over the last decade, not even pre-crisis. Here is further evidence on how productivity patterns were different during the early 1980s.
4. For another take on #3, during the job-destroying periods of 2009, per hour labor productivity growth is rising at astonishing rates, try 3.4, 8.4, 7, and 6 percent, each quarter, annualized. That's not just the regular accretion of technological progress (though some of it may be), it is an artifact from dumping lower quality and zero MP workers. If I look in the second quarter and see labor hours go down 7.9 percent and see per hour productivity rise 8.4 percent, well, that's no proof but I sure go hmm….
5. I would not take it for granted that "normal" productivity growth continues in times of shock and crisis. Maybe yes, maybe no. Scott's talk of the "trend rate" is assuming that the growth and cyclical components are separable and that is begging part of the question.
6. The zero MP hypothesis helps explain why unemployment is so much more severe among the less educated and the lower earners. In contrast, Krugman writes: "As Mike Konczal points out, basically everyone’s unemployment rate has doubled, no matter their education level or location." In reality, that kind of multiplicative relationship is very much consistent with joint AS-AD determination, including a zero MP for many workers in the equilibrium. I'll write an entire blog post on that question soon, and then we'll see that this result actually discriminates against pure AD theories or is at best a neutral pointer.
7. What does the zero MP hypothesis add? First, the zero MP hypothesis explains why wage adjustments can't do the trick for a lot of the unemployed, as wages won't fall below zero. Second, the zero MP hypothesis explains why you need steady real growth, boosting the entire chain of demand, to reemploy lots of workers and reflation alone won't do the trick. (I still, by the way, favor reflation because I think it will do some good.) Those predictions are not looking terrible these days.
8. The AD-only theories, taken alone, encounter major and indeed worsening problems with the data. Year-to-year, industrial output is up almost six percent, sales up more than six percent, but the labor market has barely improved. How does that square with the AD-only hypothesis? Has it been seriously addressed? Arnold Kling also has relevant comments and in passing I'll note that the "increases in the risk premium" factor is being neglected in this discussion of Kling's points.
9. Krugman (not Scott), in particular, is proposing an alternative view with a) upward-sloping AD, b) downward-sloping AS, c) the implication that huge boosts in the minimum wage would restore the economy and employment, and d) requires a tight liquidity trap when the theoretical literature distinguishes between "interest rates literally at zero" and "interest rates near zero." His comparison of ZIRP and ZMP does not raise those issues on the other side of the ledger.
I think Scott is underplaying some of the more detailed facts about labor markets, such as mentioned in #3, #4, #6, and #8. Krugman simply isn't considering the stronger versions of the zero MP hypothesis and thus he is dismissive rather than confronting the very real problems in the AD-only point of view.
Addendum: Arnold Kling has more.
Assorted links
1. Juan Cole on Tunisia. And is Jordan next?
2. Via Chris F. Masse, Peter Thiel loves New Zealand.
3. Hugo Mercier on Bourgeois Dignity.
4. Harvey Mansfield on many topics, always a bracing read.
Mandates don’t stay modest, a continuing series
This remains an underreported story:
Should health insurers have to cover treatment of Lyme disease? What about speech therapy for autistic children? Or infertility treatments?
Can they limit the number of chemotherapy rounds allowed cancer patients? Or restrict the type of dialysis offered to people with kidney disease?
This week an independent advisory group convened by the Obama administration launched what is likely to be a long and emotional process to answer such questions…
Under the health-care overhaul law, beginning in 2014 all new insurance plans for individuals and small businesses will have to include a package of minimum "essential benefits" falling into 10 general categories – ranging from hospitalization, to prescription drugs, to rehabilitative and habilitative services. But Congress largely left it to Secretary of Health and Human Services Kathleen Sebelius to decide how detailed to make the essential benefits package and what exactly to put in it.
Defenders of ACA do not in general like to confront the "at what margin?" question. The rhetoric used to argue for the bill usually suggests that the mandate must indeed be extended. I will keep my eye on this issue. Here are previous installments in the series.
*The Return*
The author is Daniel Treisman and the subtitle is Russia's Journey from Gorbachev to Medvedev. Is this the first non-fiction book to be making my "Best of 2011" list? Most of all, it argues persuasively that, rather than botching the transition away from communism, the Russians/Soviets did a remarkably good job, relative to what could have been expected. It's also the best all-round book-length treatment of what the subtitle indicates and it is readable as well. Excerpt:
But [under Putin] did the bureaucracy become more effective and the population safer? The state certainly grew. In Putin's eight years as president, about 363,000 additional bureaucrats were hired, mostly federal agents stationed in the regions. Law enforcement mushroomed. In the United States, there are two judges and prosecutorial employees per 10,000 residents. When Putin took over, Russia had eight; when he left, it had fourteen. Federal spending on law enforcement and national security rose from $4 billion in 1998 to $26 billion in 2007.
Despite this influx of resources, most indicators suggest the state became less, not more, effective. It built less housing, paved fewer roads, and laid fewer water mains and gas lines per year than under Yeltsin. The number of public schools and buses in service fell faster than before. Reforms of the education and health systems were repeatedly postponed…As for keeping citizens safe, few saw any improvement.
Here is a recent review of the book from the WSJ; I liked the book more than he did.
When will people move away from pure AD theories of unemployment?
Commerce department figures on Friday showed that total sales in 2010 were up 6.8 per cent from 2009, marking the sharpest such increase in more than a decade…
Industrial output is up by 5.9 per cent year-on-year.
Yet the labor market is still "eh." Here is more, but again note it is wrong to reject the AD factor altogether, though it seems to be becoming less relevant over time. Arguably AD and AS are interacting in unusual and presumably deleterious ways.
I have read too many blog posts attacking a caricatured version of either RBC theory or a narrowly defined notion of "structural unemployment" which requires excess demand for labor in significant parts of the economy. As Arnold Kling points out, the labor market shock can be asymmetric in its effects.
From a different direction, here is Scott Sumner criticizing the recalculation argument. I read Scott as establishing the conclusion that both AD and AS must be at work.
The paradox of Tunisian water policy
One quality of life measure put Tunisia first in the Arab world. If you look at water policy, the Tunisian government has long had a strong reputation. Here is Wikipedia:
Tunisia has achieved the highest access rates to water supply and sanitation services among the MENA countries through sound infrastructure policy. 96% of urban dwellers and 52% of the rural population already have access to improved sanitation. By the end of 2006, the access to safe drinking water became close to universal (approaching 100% in urban areas and 90% in rural areas). Tunisia provides good quality drinking water throughout the year.
I've never been to Tunisia, but from readings I've found the country especially difficult to understand. They've had a corrupt autocracy for a long time, but some areas of policy they get (inexplicably?) right. And usually they are by far the least corrupt country in the Maghreb. Dani Rodrik called the place an unsung development miracle. Maybe that was exaggerating but for their neighborhood they still beat a lot of the averages and they've had a lot of upward gradients. They've also made good progress on education.
And now this. Perhaps it is no accident this is "the first time that protests have overthrown an Arab leader." The lesson perhaps is that the path toward a much better world involves…small steps. Civil society there is relatively strong and has been so for a while. Democracy is probably not around the corner, but if you're studying social change it's worth spending a lot of time on why Tunisia and Jordan are often so much better run than the other Arab states.
Freakonomics blog to go indie and leave NYT
The scoop is here and for the pointer I thank Chris F. Masse. Dubner emailed to Forbes:
Yes, we’re taking Freakonomics.com indie again because, even though the 3.5 years with NYT.com has been beyond great, a lot has changed in our universe since then – the film, a radio show, more books, etc. – and we’ve got a big appetite for uniting all these things, and a few more things, into one tight-knit little media channel known as Freakonomics.com. And we just couldn’t do that if the blog still lived at NYT.com. Paywall issue wasn’t a major consideration.
Will Paul Krugman end up behind a paywall?
What Belarus is really like
A hunter in Belarus was shot in the leg by a fox that he had wounded and was trying to kill.
The man was trying to finish the animal off with the butt of his rifle, but as the pair struggled the fox got its paw on the trigger of the gun and fired a shot.
Prosecutors from the Grodno region said the unnamed hunter ended up in hospital with a leg wound.
"The animal fiercely resisted and in the struggle accidentally pulled the trigger with its paw," the Telegraph quoted one prosecutor as saying.
The link is here, other versions of the story are here. It is said that the fox got away.
Assorted links
Should we use the price system for evacuation?
Stigler reports that he received a letter from Tjallling Koopmans asking whether he had in fact advocated the use of the price system to evacuate NYC in case of a bombing during WWII. Stigler responded that he had never even thought about the problem before, but upon reflecting on the problem that (1) upon the first bombing of NYC any system of evacuation would be chaotic and inefficient, but that (2) if the bombings were repeated, that indeed he would argue that the price system would be the most efficient way to handle the problem.
It depends on the counterfactual. It is already the wealthy who have the resources to leave afflicted areas, or who had the resources to send their children to the countryside, in the case of bombed London during World War II. You could pay a relative to take the kids in, rather than having to rely on the charitability of your relatives. So very often we already are using the price system, and in a fairly orderly manner.
If you are evacuating a city suddenly, along a constrained road or path, ideally (at least by economic standards, which may or may not be your final moral theory) you wish to favor the people who are young, productive to others, and people who value their own lives highly and are risk-averse. A market auction tends to favor the wealthy and in this context many of the first leavers in line will be inefficiently old, again with the moral caveat noted above. The wealthy spend money on the basis of "if I die, my wealth is worthless or worth less because my bequest motive is less than full," whereas from a social point of view the wealth survives the death of the wealthy person.
If institutions will enforce the traditional "women and children first," with a minimum of corruption, that solution may be preferable to the auction. Men are on average more productive than women in the labor force, but the number of replacement children in the longer run is more closely tied to the number of women than to the number of men. So, indirectly, favoring women favors men too.
The private sector often chooses the rule of "women and children first," at least when the disaster is explicitly seen as such. This rule was heeded in the case of the Titanic but not the Lusitania, arguably because the latter ship sunk more quickly and with more panic.
In many other settings, especially where dying is non-immediate or stochastic, the market chooses the auction method. Think of the market for pharmaceuticals. In the absence of government subsidy, you have to buy the drugs and there is not always price discrimination in favor of women and children. Also consider allocation procedures for kidneys, hospital rules for triage, and the sale and resale of fresh water during cholera epidemics, among other scenarios. What's striking is how many different allocation procedures markets use, depending on context.
Road safety
Odds in New York City in 1900 of dying in a horse accident: 1 in 19,000
Odds today of dying there in an automobile accident: 1 in 26,000
That is from the February 2011 Harper's Index.
Per capita gdp in Belarus
I am correcting the mistake in the previous post, here is a range of estimates from $5k up through $12k. The point remains that a country, especially a European country with free and wealthy nearby neighbors, should not be content with the lot of Belarus. My apologies for the slip-up.
Addendum: As Blackadder notes, in terms of the Satisfaction with Life Index, they are near the very bottom.