Was the 20th century one of inflation?

by  Tyler Cowen in

Peter Gordon looks at a 1902 Sears Roebuck catalog and asks whether money was worth more back then.

Of course it depends how much you are given. $5.00 back then goes a longer way, but I would rather earn $100,000 a year today, and yes that is not adjusting for inflation. For Peter modern pharmaceuticals are the clincher:

Would you want their best 1902 camera for $7.90? Probably not. High-end cutlery for 6 for $1.79? Why not? A great western saddle for $8.95? Sure.

It’s the Sears “Drug Department” that is the real eye opener. “Fat Folks, Take Rose’s Obesity Powders and Watch the Result … $4.20 per dozen boxes.” Herb laxative teas for 16 cents a box may be OK. Dr. Rose’s Arsenic Complexion Wafers 35 cents a box may have few takers today. Vin Vitae for 69 cents (“Not a Medicine … Not Merely a Tonic”). The “White Ribbon Secret Liquor Cure” went for $2.50 a box. The list goes on and does focus the mind.

My question for today: Does this mean that we should adjust the gdp deflator series to show ongoing deflation for the 20th century?

Here is a general plug for Peter’s excellent blog. Here is Virginia Postrel on how we underestimate the benefits from new products.

Can the earth support 9 billion wealthy people?

by  Tyler Cowen in

As China and India continue to grow, we must ask whether the earth could support several billion more people at European levels of wealth. Michael Lind says yes:

…there seems to be no insuperable physical or ecological reason why 9bn people should not achieve something like the lifestyle of today’s rich, with technology only slightly more advanced than that which we now possess.

Here is part of the argument:

As machines get ever cheaper, more people will be able to afford more of them. Today the combined mass of all machines, at more than a gigaton (Gt), exceeds the combined mass of human beings, about 1 megaton. The total amount of carbon, 5Gt, required to power and construct machines and electric utilities greatly exceeds the 1.3Gt global consumption of carbon by human beings, mostly in the form of food. As affluence grows, the amount of energy and raw materials “consumed” by machinery will escalate even more rapidly than human consumption. But this need not mean an end to the machine age. If manufacturing processes were to imitate the recycling that takes place in the biosphere, then most machine materials might be recycled to make new machines, rather than thrown away. And long before all fossil fuels were exhausted, their rising prices would compel industrial society not only to become more energy efficient but also to find alternative energy sources sufficient for the demands of an advanced technological civilisation – nuclear fission, nuclear fusion, solar energy, chemical photosynthesis, geothermal, biomass or some yet unknown source of energy.

Here is more:

…agriculture, including logging, accounts for about 21m square miles, or ten times as much land as that occupied by urban areas and reservoirs.

Cutting urban land use by half would free only 1m square miles or 2 per cent of the ice-free land surface, while cutting agricultural land use by half would free ten times as much land – 10.6m square miles, or 21 per cent of the earth’s non-glaciated surface.

In Lind’s view, producing enough meat for nine billion wealthy people is likely to be the biggest problem. In my view, the biggest problems are ones of transition, rather than the end-state. China could get much richer before it moves close to environmental “best practices”; right now per capita income is just approaching that of Guatemala.

A fun tidbit:

Lind quotes Paul Romer: “[if America continues growing] in 50 years we can get extra income per person equal to what in 1984 it had taken us all of human history to achieve.”

Addendum: Here is the working link.

The most expensive cities

by  Tyler Cowen in

The first three are Tokyo, London, and Moscow. The cheapest major cities are Asuncion, Paraguay; Montevideo, Uruguay; and Santo Domingo, Dominican Republic.

How about the U.S.?

Among U.S. cities, New York, which ranks No. 12 worldwide, is the most expensive. Other cities that rank as among the most expensive are Los Angeles, Chicago and San Francisco. Pittsburgh, meanwhile, ranks as the least expensive city in the country.

Here is some housing information:

For one month in that two-bedroom apartment in Tokyo, you’ll drop a stunning $4,501. In Paris, you can expect to pay $2,422 and in Beijing about $3,700.

The same flat in London will cost you about $3,603, whereas in New York you’ll pay about $3,500. The best “deals” are in Buenos Aires or Johannesburg, where such an apartment will only cost you about $600.

Here is the full story.

Who was the Mona Lisa?

by  Tyler Cowen in

Seventeen years of research, beginning in Germany, have led the Adelaide historian Maike Vogt- Luerssen to believe that the Mona Lisa is the lovesick former Duchess of Milan, Isabella of Aragon, and not the wife of a Florentine silk merchant, as has been believed.

And why is she so sad?

She married at the end of 1488 when she came to Milan but she had a big problem. She married her cousin, a beautiful man but he was a drinker, and he had problems with impotence.”

The Isabella alternative has long been known to art historians, now the evidence in its favor has gone up. Here is the full story, which includes a discussion of the evidence. Here is a recent article which offers a scientific explanation of the mystery of Mona Lisa’s smile.

Haitian art exhibit

by  Tyler Cowen in

One of the largest and best-ever exhibits of Haitian art will be opening this week at the Organization of American States, 17th and Constitution Ave., Washington D.C. The showing is part of a more general celebration of the Haitian Bicentennial. I am pleased to announce I will have eight pieces in the show. In addition to the voodoo flags, and a number of paintings, look for the bearded plastic doll on the horse, trampling two bound babies, and wrapped in sequins and jewels (not a joke!). Opening night is Monday, 6 p.m. (invitations required), after that the exhibit is open regular business hours, but not weekends. The show closes July 9th, make it if you can!

The Anti-Capitalist Mentality

by  Tyler Cowen in

Short parts of this Mises classic have been put on-line, courtesy of the Mises Blog.

This has long been my favorite Mises book, and my favorite Mises title, here is one juicy passage:

There has never been an era in which the many were pre­pared to do justice to contemporary art. Reverence to the great authors and artists has always been limited to small groups. What characterizes capitalism is not the bad taste of the crowds, but the fact that these crowds, made prosper­ous by capitalism, became “consumers” of literature–of course, of trashy litera­ture. The book market is flooded by a downpour of trivial fic­tion for the semibarbarians. But this does not prevent great au­thors from creating imperishable works.

And how is this for polemic?:

John Ruskin will be remembered–together with Carlyle, the Webbs, Bernard Shaw and some others–as one of the gravedig­gers of British freedom, civilization and prosperity. A wretched character in his private no less than in his public life, he glorified war and bloodshed and fanatically slan­dered the teachings of political economy which he did not understand. He was a big­oted detractor of the market econ­omy and a romantic eulogist of the guilds. He paid homage to the arts of earlier centuries. But when he faced the work of a great living artist, Whistler, he dis­praised it in such foul and objurgatory language that he was sued for libel and found guilty by the jury. It was the writings of Ruskin that popularized the prejudice that capitalism, apart from being a bad economic system, has substituted ugliness for beauty, pettiness for grandeur, trash for art.

When was the last time you heard the word “objurgatory” used so effectively?

Mises was no paleo-conservative, rather he embodied the radical streak in classical liberalism at its best.

How ancient is your state?

by  Tyler Cowen in

When, pray tell, does nation building succeed? Bockstette, Chanda, and Putterman suggest an answer:

A longer history of statehood might prove favorable to economic development…for several reasons. There may be learning by doing in the way of public administration…The operation of a state may support the development of attitudes consistent with bureaucratic discipline and hierarchical control…

The authors provide a measure of the antiquity of a state; under their measure China comes in first place and Zambia comes in last. It turns out that state antiquity matters in cross-sectional growth equations:

…suppose that Mauritania, the country which recorded the second lowest value for [state antiquity] instead had the [state antiquity value] for China…Based on the estimated coefficient…this would mean that Mauritania would have recorded an annual increase of 1.9 percent in its growth rate. Given that Mauritania’s average growth rate during the 35-year period was nearly zero and China’s was 3.8 percent, differences in [state antiquity] can, by these calculations, explain half the difference in growth rates between the two countries.

I do have some caveats. Who ever knows what causes what in these macro equations? Furthermore state antiquity explains growth rates but not income levels. This would suggest that state antiquity matters more today than ever before, a possible but puzzling relationship. That being said, state antiquity does partially explain a “social infrastructure” variable, which in turn helps explain income levels.

If it were up to me: I would rather see economists address the important questions with imperfect tools, rather than focus on problems where their methods are immune to internal criticism.

By the way, I can’t find Iraq on their (hard to read) scatterplots, but I understand the modern version of the nation as starting only under British imperialism.

John Kerry’s hi-tech plan

by  Tyler Cowen in

Here is one summary of his latest proposals, the bracketed text is my comments:

Sen. John Kerry called Thursday for increased investment and support for America’s high-tech industry. His proposals include:

— Encouraging technological innovation by cutting some capital gains taxes and revising or eliminating regulations that affect competitiveness. [Good news]

— Using tax incentives to expand universal broadband access, which he believes will add $500 billion and 1.2 million new jobs to the economy. [ I don’t see the social benefit here, the private benefits of broadband are largely internalized; it sounds like this is based on a bad economic impact study.]

— Increasing government research funding in science and technology, including money for “pure” science research. [Government subsidies for science should be oriented toward the “pure” side of the spectrum. We need to lengthen our time horizon here, and let’s focus on infectious diseases and non-polluting energy sources. I am much more skeptical about the government’s ability to guide applied technology. Remember Synfuels? But if we are going to do this, we must make real spending cuts elsewhere, most of all in Medicare]

— Improving math and science education at the K-12 level and rewarding colleges for increasing the number of science and engineering degrees they award. [Sounds good, but I don’t expect federal involvement to bring a real improvement. Nor do I think the a marginal increase in science degrees will mean more scientific progress. How good is the marginal science student, and how much does he or she love science?]

The plan also involves spectrum auctions [good] and stem cell research [good].

The bottom line: This is better than I had expected. I do worry that only the worst and porkiest elements will survive the political process.

Missing markets: wireless assistance

by  Tyler Cowen in

The Scandinavian countries all have wireless directory assistance, but the U.S. does not, largely because of privacy concerns and fear of telemarketers. Here is a summary of recent debates.

This week’s Fortune magazine (June 28, p.47) writes:

…directory assistance could be much more than just a repository for phone numbers. She argues that the phone companies, with some new software and employee training, could begin offering new services, such as a system that allows an operator to forward, for a fee, a text message to the unlisted customer you’re trying to reach. And why stop at wireless numbers? Directory assistance could list e-mail addresses, work numbers, website addresses — or any other info-nugget a customer might desire.

What I want: Large numbers of well-educated Indians, standing by a phone in Bangalore, who can use Google for me and answer my queries when I am on the road. Some of these Indians would be conversant with macroeconomic time series data, others would be experts in the use of MapQuest.com.

What will happen with Medicare?

by  Tyler Cowen

Daniel Shaviro writes:

While the future is inevitably opaque, here is a forecast. The next few years may see the adoption of policies that widen the fiscal gap, including the enactment of unfunded prescription drug benefits that keep getting larger through a political bidding process [good call here!]. By 2010-20, however, the entitlement programs’ fiscal prospects will look grave enough to prompt significant tax increases that are now unthinkable. These will include the enactment of a VAT that is officially earmarked to one or both of the entitlements, because the lure of a dedicated money machine will have grown too great to pass up.

Medigap will be addressed at some point, because cross-subsidization is so hard to defend, but the impact of the change will be unduly deferred. Copayments will increase and the Medicare eligibility age be postponed, though again with a deferred effective date. Explicit means-testing within Medicare is unlikely…And Medicare will continue to misdirect its insurance coverage toward the low end as opposed to the high end…

Inflation will be used to narrow the fiscal gap…these might include eliminating or reducing the indexing of income tax rate brackets and Social Security benefits. Medicare will benefit fiscally from inflation because it permits payments to providers to decline in real terms without declining nominally. Indeed, doctors will drop out of Medicare in increasing numbers as its payment fees shrink relative to those that patients with the cash are willing to pay…

We are then told that we will see health care rationing, lower investments in health care human capital and technology, and growing disparity between rich and poor in terms of health care access.

For a useful comparison, here is Shaviro on what should happen.

The bottom line: The fiscal burdens of Medicare are, by far, the biggest economic problem in today’s America. David Cutler (p.77 of the book) estimates that restoring long-term fiscal balance to the program would require immediate benefit cuts of 38 to 61 percent. That’s not going to happen.

What should we do with Medicare?

by  Tyler Cowen in

Daniel Shaviro offers the following suggestions:

1. Reduce Medicare’s low-end coverage of routine expenditures, and use replace deductibles with lesser copayments that extend over a broader range.

2. Provide prescription drug and catastrophic care coverage without increasing the overall value (net of premiums and copayments) of Medicare [Ha!, interjects TC, this must have been written before the Bush bill passed]

3. Impose a tax on Medigap coverage of Medicare copayments, or else bar such coverage altogether.

4. Make copayments income-related…[“means-tested”]

5. To the extent that income tax increases are needed, use base-broadening in lieu of rate increases to the extent possible.

6. Enact a consumption-style VAT without transition relief for old wealth.

7. Use accounting rules to discourage Congress from dissipating the net revenue from tax increases that are meant to help meet future Medicare liabilities.

8. Attempt to realize cost savings by modifying Medicare’s current fee for service structure. While managed care has had disappointing results as applied to workers under age sixty-five, this may reflect the political and legal obstacles to imposing rationing.

My take: This is a serious effort to solve a real problem. I’ll endorse 1-4 and 7. When it comes to higher taxes, let’s just hope that productivity growth remains high. If I have to, I’ll get out and push. #8 sounds too much like putting old people out on ice floes, but it would solve at least twenty percent of the problem with only minimal impact on life expectancy. And for the proposal to be effective, how voluntary would managed care be? For those reasons, I can’t press the “do it” button on #8; I’ll give it a pass and plead political infeasibility. And while I am fully aware that Medicare is the fiscal train wreck, compared to which most other economic problems pale, shouldn’t the words “cut spending” somehow play a role?

Here is my previous post on Shaviro’s illuminating book. Today was Shaviro on “what should happen.” Stay tuned for Shaviro on “what will happen.”

Who are Britain’s most influential public intellectuals?

by  Tyler Cowen in

Here is one list, from Prospect magazine. Here is some discussion. Economists include John Kay, Samuel Brittan, Martin Wolf, Adair Turner, Robert Skidelsky, Amartya Sen, and Richard Layard. You have a chance to vote for the top five of the one hundred. Here is a Richard Posner list of public intellectuals, not restricted to the UK. Here is a related review of Posner.