Historical GDP and inflation at your fingertips
Here is U.S. gdp, real, nominal, and otherwise, from 1789 onwards. Here is an easy-to-use inflation calculator.
Thanks to Eugene Volokh for the pointers.
Social security options
Brad DeLong writes about “The Biggest Risk-Arb Transaction Ever,” namely the investment of social security funds in private stocks:
The plan, you remember, was for the federal government to sell a huge number of Treasury bonds, invest the proceeds in stocks, distribute the stocks to individuals as their Social Security Private Accounts, and use the equity premium–the average spread on the return on stocks over the return on Treasury bonds–to reap immense profits and save Social Security.
Brad offers a few options as to what would happen, I find the following two hypotheses most plausible:
…even though there is compelling evidence that the equity premium is too high and that there is lots of profit to be earned by long-run bets that go short Treasuries and long stocks, enactment of the Lindsey-Feldstein-Samwick plan will cause an immediate jump in the stock market. Current owners of stock will profit massively as people’s expectations of the massive future demand from Social Security Private Accounts. The equity premium will shrink quickly. And there will be little profit captured by beneficiaries and little money to save Social Security. (However, the falling equity premium will boost corporate investment, real profits, and real wages by eliminating the Harberger triangle currently created by the market inefficiency underlying the excessive equity premium.)
One [option] says that you might make $2.4 trillion in present value–that price pressure from the demand for stocks for Social Security Private Accounts will eventually shrink the excess equity premium to close to zero, but that will take a generation. And in the meantime, as the excess equity premium is still there (but shrinking), you do profit from the wedge caused by the fact that the private stock market grossly overprices systematic risk.
In other words, even if the stock market currently earns (an expected) seven percent a year, you can’t count on replicating that same seven percent on the money you pull from the social security trust fund. “Private investing” of the funds does not change this basic reality.
Let’s not forget another of Brad’s points: “this [plan] is no bargain if the risk the stock market will tank is borne by beneficiaries”
Brad’s earlier post offers some options on the politics of social security, I go with a view that he holds only on alternate Tuesdays, namely the following:
The fourth argument is: “You want the SSTF invested in private bonds and stocks? Are you crazy!? Do you want some government bureaucrat voting stocks and so electing corporate managers? That’s just insane!”
The bottom line: Reforming social security is not going to be easy.
The economics of gay weddings
That’s weddings, not marriages. Here are a few facts:
1. One estimate puts the size of the gay community in the U.S. at 14 to 16 million, with a projected buying powr of $485 billion.
2. As many as six million gay people live with same-sex partners. Marketers believe gays to have higher-than-average disposable incomes.
3. 2.3 million (heterosexual) couples marry a year, and spend about $50 billion on their weddings.
4. The average heterosexual wedding is estimated to cost $22,000 an event, the average gay wedding costs slightly less at $15,000 [do fewer people come? are fewer people invited?].
5. The not-so-small wedding industry is showing increasing support for the gay marriage idea. Check out these advertisements.
6. Tourist boards in Scandinavia, where gay marriage faces a relatively liberal legal treatment, view gay marriage as a marketing opportunity.
7. Gay marriage websites are proliferating, for instance RainbowWeddingNetwork.com and Alternate Weddings.
8. “Gay Wedding Expos” are popping up around the country, drawing tourist dollars.
The above facts are taken from Sunday’s Orlando Sentinel, “Gays are Booming Market for Wedding Industry,” not currently on-line.
My take: The mass media and entertainment sectors, motivated by commercial pressures, already have led the mainstreaming of gay America. Business lobbies represent some of the most effective spokespeople for the gay marriage idea.
By the way, are you worried about the federal deficit? Legalizing gay marriage, through the tax law, could well yield over $1 billion in tax revenue.
Markets in everything, continued…
Did you ever wish you could hide your location when talking on the phone? Ever wanted to give the impression you were somewhere else?
SounderCover gives you the ability to add a background sound to any incoming or outgoing call, giving the impression that you really are in the environment where the background sound is normally heard.
Buy here. Here is a story, the service can mimic a circus or the drill of a dentist. How about clattering keyboards?
Thanks to this primate for the pointer.
Lending American capital to Mexicans
Seeking to tap into the billions of dollars that Mexicans working in the United States send home each year, a Mexican mortgage finance company is opening a New York branch on Thursday to offer loans to Mexicans who want to buy a house in their country.
Last year, Mexicans sent home $13.27 billion, more than the country earned from foreign tourism. The money lifts many families out of poverty and in some regions is the only source of income.
Many Mexicans working in the United States hope to save enough to buy a house in Mexico and return. But the money they send home is often consumed by daily needs.
Under the lending plan created by Hipotecaria Nacional, Mexico’s largest mortgage finance company, a Mexican working in the United States – legally or illegally – will be able to apply for a loan and pay the monthly installment in dollars through an American bank.
Relatives in Mexico must also sign the loan, which is issued in Mexico in pesos and backed by Mexico’s national mortgage bank, Sociedad Hipotecaria Federal.
And what do the stats look like?
…a worker would need to pay $400 a month for a 15-year mortgage at 15 percent interest on a house valued at about $36,000 with a 20 percent down payment. That interest rate, which would be quite high in the United States, is reasonable by Mexican standards, given higher base interest rates, inflation and the greater risk of default.
I’ll add that a house in rural Mexico costs only a few thousand dollars to buy or construct.
Nor are real estate-based capital movements restricted to mortgages proper:
…it has been Mexican companies that have come up with the most innovative ideas. Since 2001, Cemex, the cement giant, has allowed Mexicans to pay for bags of cement in the United States that relatives pick up in Mexico to build houses. The company, which has five offices in California and one in Chicago, even offers free engineering advice.
Here is the full story.
The National Book Awards
Edward P. Jones, who ended a 10-year absence from publishing with his novel “The Known World” (Amistad/HarperCollins), won the fiction prize of the National Book Critics Circle on Thursday night in a ceremony at New School University in Greenwich Village.
These other awards were made:
¶Paul Hendrickson, “Sons of Mississippi: A Story of Race and Its Legacy” (Knopf), for general nonfiction.
¶William Taubman, “Khrushchev: The Man and His Era” (W. W. Norton), for biography-autobiography.
¶Rebecca Solnit, “River of Shadows” (Viking), a study of high-speed photography and other 19th-century technology, for criticism.
¶Susan Stewart, “Columbarium” (University of Chicago Press), for poetry.
Studs Terkel, 91, the Pulitzer Prize winning author, oral historian and self-described champion of the uncelebrated, received the Ivan Sandrof Lifetime Achievement Award.
Here is the story. I had started the Jones book and it bored me, I will try again. The Taubman book on Khruschchev is first-rate.
Maternal role models
…in families where the mother worked while her children were growing up, her adult daughters and sons attain jobs that are more equitable in terms of prestige. But in cases where the mother did not work – and therefore daughters lacked a direct, same-sex parental role model in the world of careers – sisters fare considerably worse than their brothers: my data show that women whose mothers did not work outside the home when they were growing up are 15 percent less likely to have graduated from college than their brothers were; this statistic stands in contrast to a statistically insignificant 5 percent difference between sisters and brothers in families where the mother did work outside the home for at least a year during their childhood. To put the impact of maternal employment in even starker terms, consider the following: if we hold education level and occupational prestige constant, sisters earn approximately less than $5,000 less in annual income than do their brothers. If we divide this same data according to maternal employment, however, the pattern diverges wildly. For those whose mothers worked outside the home when they were growing up, the income differential between sisters and brothers is reduced to approximately $4,5000 – but for those whose mothers did not work, the income differential shoots to more than $8,000.
From Dalton Conley’s excellent The Pecking Order: Which Siblings Succeed and Why. Here is my earlier post on Conley.
What is the bottom line here? If a mother works, her daughters are more likely to earn an income commensurate with their familial status. Working moms should feel less guilty.
Switching conventions
Economists commonly cite driving on the right (left) hand side of the road as an example of a beneficial social convention. The equilibrium is arbitrary, provided that everyone agrees to drive on the proper side.
I was surprised to learn how recently some of these road conventions have solidified. Consider the following:
1. Seventeen percent of the world’s area drives on the left. This amounts to about thirty-two percent of the population, it includes India, Indonesia, Pakistan, Japan and Bangladesh.
2. Originally Quebec and Ontario drove on the right and the rest of Canada on the left. The prairie provinces, when settled, drove on the right but British Columbia did not. Canada started a move toward universal right-side driving in the 1920s. Newfoundland and Labrador were the laggards, not switching until 1947, shortly before they joined the confederation.
3. A 1903 Baedeker Guide wrote the following:”The rule of the road varies in different parts of Italy. In Rome and its vicinity the rule is the same as in England i.e. keep to the left in meeting, to the right in overtaking vehicles. In most other districts, however, this rule is reversed.”
4. Most of Austria drove on the left until the Anschluss of 1938. Hitler also made Czechslovakia and Hungary drive on the right.
5. The Falkland Islands drove on the right during the brief Argentinian occupation of 1982.
6. Myanmar (Burma) switched to right-side driving as part of a move to consciously repudiate its British colonial heritage. Panama changed in 1943, largely because the Pan American Highway opened up.
7. Recent switches to the right include China, Taiwan, and the Koreas (1946), Belize (1961), Ethiopia (1964), Iceland (1968), Nigeria (1972), Ghana (1974), and South Yemen (1977).
8. Island nations are less likely to switch to right-side driving, or more likely to switch later.
From Right Hand, Left Hand: The Origins of Asymmetry in Brains, Bodies, Atoms, and Cultures, by Chris McManus.
My take: Switching is easier and more common than you might have thought. In the meantime, I’m still waiting for England, New Zealand, and Australia to adopt consistent rules as to who has the right-of-way when entering a roundabout.
Public choice theory and Haiti
Why is Haiti such a mess? How might a public choice economist think about the Haitian system of government?
Before Papa Doc Duvalier, Haitian leaders were lucky to last a few years. Look at this list of constitutions. Hegel suggested that voodoo religion would not lead to political liberty; so far Haiti has not disproved this thesis. Here is a comprehensive page on Haitian history, replete with useful links.
Haitian government appears to have no “core,” to use the economist’s term for instability. Most of the population is illiterate but extremely smart and distrusting of their governments. The distrust is so strong as to become a self-fulfilling prophecy. No leader can command lasting popular support or form a stable political coalition. One alternative is to rule with complete tyranny; alternatively, you can be more moderate and govern with a shorter-term perspective. In other words, you loot the country, while telling yourself, correctly, that the people who will follow your reign will be even worse.
The Haitian voodoo gods are intransitive in their power relations, and so has been the Haitian government, at least in the absence of massive oppression or outside interference.
The Duvalier years represented a watershed in the ongoing 150-year collapse that we call Haitian politics. At first it seemed like an acceptable bargain for the elites. Accept a charismatic dictator in return for public order and protection of investments. But it turned out that Papa Doc was crazy and he waged an ongoing campaign to destroy Haitian intermediary institutions. Soon there were more Haitian nurses in Montreal than in Haiti. By the time the reign of his son Baby Doc ended in the mid-1980s, the country was in tatters.
According to one account, Haitian politics is run by about ten families, many of them of Lebanese descent. In this view no leader can challenge their commercial interests. The only question is how oppressive that leader must be to rule the country and constrain a potential coup d’etat. But I view this account as too simplistic. Haiti is not a story of “the poor get poorer, the rich get richer.” The rich get poorer too. Perhaps Haitian “social capital” is a wasting asset, and we are in an equilibrium where everyone is willing to erode it further, knowing that a downward spiral cannot be prevented. The collective result of this behavior is to hasten the corrosion of order.
Drug money has been the big story for the last fifteen to twenty years. The poverty, corruption, and coastline of Haiti make it easy prey for drug smugglers. And of course it is close to the United States. As the older wealthy families lose ground, drug money has become the dominant political force. It can be argued how directly Aristide has been linked to the drug trade. But ultimately a Haitian politician must at least acquiesce in massive drug smuggling. A leading Haitian politician with no links to the drug trade would be like a Saudi prince with no connection to oil money — in other words, don’t believe it.
The other key player, of course, is the United States government. Aristide returned because Clinton reinstalled him. Aristide left when Bush told him to get lost. The U.S. can use force, withhold foreign aid, or use proclamations to make a leader focal or not. You might recall that Aristide did not allow legitimate elections to occur, which led to a crippling freeze on foreign aid. Aristide also proved no friend of democracy. In his “defense,” probably no Haitian incumbent could have survived fair elections, which brings us back to either tyranny or ever-circulating regime, short-time horizons, and political looting. Aristide chose a mix of these options.
So let’s say I was the president of Haiti. I have to keep the leading families happy or at least on board. I have to stop the drug smugglers from killing me or mobilizing opposition. I have to acquiesce in the drug trade, recognizing that most of those around me are on the take. I have to deal with the warlords who rule the local neighborhoods. I have to keep the U.S. President happy or at least neutralize him. I have to keep the population from starving. I have no resources and no tax base. Most of my public servants live from corruption. My country has virtually no foreign investment or infrastructure. I don’t even rule or physically control most of the country. In case of a revolt, I have only a few thousand policeman to draw upon.
Get the picture?
The bottom line: Don’t expect things to get better.
A recipe for stopping crime?
The researchers expected that the number of crimes committed per person would fit a statistical distribution shaped like a bell if the criminal acts were being committed by random people in the selection: only a tiny fraction of boys would commit no crimes or lots of crimes, and most boys would fall into the average slot of committing a medium number of criminal acts.
Instead they found that that crime rates fell into a mathematical pattern called a power law, in which large deviations from average behaviour are more common. In both studies, most of the boys committed no crimes at all. In the Pittsburgh study, quite a few boys reported over 1,000 criminal acts during the study period, while the average number was just 90.
Physicists often find power-law statistics in systems with many interacting parts. This suggests that the young boys in the study are not responding randomly and independently to criminal opportunities that come their way. Instead they are probably influencing one another, presumably through strong peer pressure.
When the researchers subtracted results from the boys who had committed no crimes, they found a slightly different, better fit to a power law for the remaining subjects. This seems to indicate that people who commit no crimes are living in a different world from those who do – mathematically speaking.
The bottom line?
The best way to combat casual crime is not to search for persistent offenders but to deter people from committing their first crime…”Crime is never going to go away,” says Ormerod. But, he says, the best way to reduce it is to stem the flow of individuals into the criminal population.
Here is one summary. Here is the original research.
Measuring globalization
Foreign Policy magazine has just published its globalization index. The top five?
1. Ireland
2. Switzerland
3. Netherlands
4. Finland
5. Canada
The losers include Indonesia, Egypt, India (outsourcing has not taken over the country), and Iran. The index includes factors of economic integration, personal contact, technology, and political engagement. The link includes the full data plus a detailed discussion of how the index was constructed.
Check out this graph, levels of globalization vs. life expectancy. Globalization vs. religious participation is harder to read but interesting nonetheless.
My favorite is levels of globalization vs. women’s well-being, take a guess which way it goes. This graph should be enshrined in the undergraduate curriculum of every major university.
Movieoke
Can’t sing? Not even good enough for your twenty best friends? Mimic your favorite actor. If you can do a scene from Zoolander “on the fly,” you are especially well suited to this hot new trend.
Let’s spend more on health care?
That’s what David Cutler argues in his recent book Your Money or Your Life.
Cutler believes that our expenditures on health care have more than justified their cost. He therefore opposes the traditional recipe of “cut costs and use the savings to finance greater access.” His attitude is closer to “expand care now and improve the quality of outcomes.” If you think that more discretionary spending doesn’t make many people much happier, why not make them healthier and longer-lived instead?
As I read the book, Cutler is pushing two major ideas:
1. Subsidize insurance to ease the problems of the forty million uninsured. But he repeats the usual numbers, without convincing me that the problem is as bad as it sounds.
2. Pay for health care results, rather than rewarding expenditures per se. In other words, give doctors and hospitals bonuses for actually making patients better.
A loyal reader of MR should not be surprised to read that Robin Hanson had the idea first. Read his intriguing essay at the link. In Robin’s vision you buy your medical care from an institution that contracts with a third party to pay penalties, or receive bonuses, depending on your longevity, disability, et.c — whatever can be measured. I can imagine such incentive schemes working in the decentralized private sector, especially after much trial and error experimentation. (Note the potential adverse selection problem: you don’t want providers to have an incentive to shun hard-to-improve cases.) It is much harder to see federal or even state governments getting the incentives right, and having the political capital to see the correct decisions through.
The bottom line? Cutler is obviously a smart guy but overall I found the book underargued. I like his optimistic, can-do attitude, but I don’t trust it in the hands of politicians.
The economics of low-cost carriers
The nation’s low-cost carriers are profitable even as the venerable “legacy” airlines barely tread water. How can they make money while offering fares that are 40 to 70 percent lower? The reasons are many — cost of labor is a big one — but here are 10 major differences between the cheeky upstarts and the big boys.
The list runs as follows:
1. Low cost carriers generally serve cities of 1.3 million or greater.
2. Southwest has 84.6 employees per aircraft, United has 116.
3. JetBlue sells 2 percent of its tickets through travel agents, US Airways sells 61 percent through agents.
4. The low-cost carriers have more point-to-point flights. 40 percent of American passengers have connecting flights, it is only 10 percent for Southwest. Connecting passengers cost more money to serve.
5. Low-cost carriers generally avoid costly foreign flights.
6. A Delta captain earns $215,000 a year, an AirTran captain earns $135,000.
7. The low-cost airlines have cheaper pension plans.
8. Southwest, JetBlue, and AirTran have no downtown ticket offices. US Airways has 13.
9. US Airways pays its telephone reservation agents $21 an hour. JetBlue pays them $8.25 an hour and has them work from home, saving on office costs.
10. JetBlue flies one kind of plane, Delta flies 16 different kinds of aircraft.
Here is the full story. Obviously many of these cost savings can cut into long-run profitability, but that is how the low-cost airlines have penetrated the market.
If air genius Gary Leff offers commentary, I’ll write an addendum.
Addendum: Here’s Gary, he says “It’s the labor costs, stupid”.
Irrational gloom, or Alex cheers me up
Alex remains worried about our future, but let us look more closely at his concerns. His biggest fear is our future demographic structure:
…the Bush policies are not the major problem. The major problem is that we are about to be hit by a tidal wave of old people (contra Tyler demographics are the problem not the solution).
Hey, I hope to be part of that wave, the problem will be if I am not!
Let’s redo Alex’s doctor example. In my version, the doctor suddenly tells Alex that he will live to the ripe old age of two hundred, most of those years in reasonable health. This is reason to celebrate, even though Alex would have to restructure his retirement plans. Something like this, albeit in less extreme form, is going on in America: a large baby boom cohort can be expected to live to older ages. Bravo, I say. Count up those extra years, including the implicit value of leisure, at their full economic value, and our “intergenerational accounts” will look much better. Note also that the elderly have a higher quality of life than ever before, for reasons ranging from cheap eye surgery to bypass operations to new drugs.
Two other issues:
First, contrary to what Alex suggests, “g>r” would solve the problem. Growing debt, which is a transfer, doesn’t change the fact that the intertemporal budget constraint has melted away, provided we can shift real resources into the present (if you’re not an economics nerd, the point would take too long to explain in non-technical language, read the link if you must).
Second, I am not convinced that Alex has put his money where his mouth is. He is conspicuously silent about whether he has gone short in bonds. Plus I bet he would have taken a tenured professorship, bought a house, and bought an internationally diversified portfolio anyway, I certainly did all of these and I am an optimist.
The bottom line? A growing population, combined with a bulge of old people, requires planning wisdom and creates some costly expenditure pressures. But overall longer lives are cause for rejoicing, not our economic doom. Love and time are what we are ultimately seeking to economize, and longer lives contribute toward both ends.