Algiers fact of the day
There has not been a single property transaction in the Casbah in 40 years, said Mr. Ben Meriem, the head of the Paris institute. “No buyers, no sellers — for 30 percent of the buildings, we don’t even know who the owners are.”
Among the disused buildings, said Mr. Mebtouche, “eighty percent are owners who have abandoned their properties,” unable to pay for renovations.
Here is the longer NYT story by Adam Nossiter. An excellent piece, though I would like to know more about the underlying regulations and incentives.
The Facebook cryptocurrency
Kroszner and I wrote about related possibilities in our 1994 book Explorations in the New Monetary Economics. Here is a not very informative WSJ article. Here is Ben Thompson speculating from his email newsletter:
This, then, is what I suspect is the overall motivation for Facebook’s efforts: having its own currency will allow for transactions on Facebook’s terms, not the credit card companies, which should, in turn, allow for both more kinds and more total transactions. Consider a Facebook currency on a theoretical level: if there were no fees attached to a transaction, micropayments suddenly become much more viable; peer-to-peer payments are simple — for both users and Facebook — as clicking a button; tipping models actually make sense.
None of these benefits are new to be sure, the question, though — and this is always the question generally, but with payments especially — is how you get from here-to-there. Remember, payments is a multi-sided network: users have to be one board, merchants need to be on board, and there has to be some sort of liquidity in the market. From a user perspective, how do you get them to buy into the network? Then consider merchants: how do you prevent them from taking money out of the market, killing liquidity?
In fact, Facebook is well-equipped on both fronts, particularly the merchant side: remember, merchants are the most likely culprits when it comes to killing liquidity in a market. They are going to transfer a cryptocurrency to fiat as soon as possible. Merchants, though, are also paying Facebook a lot of money for ads: that is, they are already putting money into the system. To that end, it is easy to see Facebook giving a discount to merchants willing to leave their money in the system and simply buy advertising using their Facebook tokens.
Users are trickier: certainly Facebook will push things like peer-to-peer payments to get users to connect up their bank accounts or debit cards to Facebook’s network, but I also suspect this is where the rumors about Facebook paying for ad-viewing comes in. This is not, in my estimation, some sort of genuine acknowledgment that user attention is worth compensating directly, but rather a plausible way to seed user accounts such that they are motivated to use Facebook’s currency; ideally, at least for Facebook, there will end up being lots of ways to use that currency.
…I don’t think that Facebook wants to impose any fees at all: thinks about it — what could possibly be more valuable to an advertising-based business than knowing exactly what customers are spending their money on?
You have to pay for Ben, but it is worth doing so, you can subscribe here.
Intelligence predicts cooperativeness better than conscientiousness does
We study how intelligence and personality affect the outcomes of groups, focusing on repeated interactions that provide the opportunity for profitable cooperation. Our experimental method creates two groups of subjects who have different levels of certain traits, such as higher or lower levels of Intelligence, Conscientiousness, and Agreeableness, but who are very similar otherwise. Intelligence has a large and positive long-run effect on cooperative behavior. The effect is strong when at the equilibrium of the repeated game there is a trade-off between short-run gains and long-run losses. Conscientiousness and Agreeableness have a natural, significant but transitory effect on cooperation rates.
That is by Eugenio Proto, Aldo Rustichini, and Andis Sofianos, forthcoming in the JPE. Note that agreeable people do cooperate more at first, but they don’t have the strategic ability and consistency of the higher IQ individuals in these games. Conscientiousness has multiple features, one of which is caution, and that deters cooperation, since the cautious are afraid of being taken advantage of. So, at least in these settings, high IQ really is the better predictor of cooperativeness, especially over longer-term horizons.
Money lending and the origins of anti-Semitism
We study the role of economic incentives in shaping the coexistence of Jews, Catholics, and Protestants, using novel data from Germany for 1,000+ cities. The Catholic usury ban and higher literacy rates gave Jews a specific advantage in the moneylending sector. Following the Protestant Reformation (1517), the Jews lost these advantages in regions that became Protestant. We show (i) a change in the geography of anti-Semitism with persecutions of Jews and anti-Jewish publications becoming more common in Protestant areas relative to Catholic areas; (ii) a more pronounced change in cities where Jews had already established themselves as moneylenders. These findings are consistent with the interpretation that, following the Protestant Reformation, Jews living in Protestant regions were exposed to competition with the Christian majority, especially in moneylending, leading to an increase in anti-Semitism.
That is from a new AER piece by Sascha O. Becker and Luigi Pascali.
Sunday assorted links
Big business isn’t big politics
That is my recent essay, adapted in Foreign Policy, from my new book Big Business: Love Letter to an American Anti-Hero. Here is the opening:
The basic view that big business is pulling the strings in Washington is one of the major myths of our time. Most American political decisions are not in fact shaped by big business, even though business does control numerous pieces of specialist legislation. Even in 2019, big business is hardly dominating the agenda. U.S. corporate leaders often promote ideas of fiscal responsibility, free trade, robust trade agreements, predictable government, multilateral foreign policy, higher immigration, and a certain degree of political correctness in government—all ideas that are ailing rather badly right now.
To be sure, there is plenty of crony capitalism in the United States today. For instance, the Export-Import Bank subsidizes U.S. exports with guaranteed loans or low-interest loans. The biggest American beneficiary is Boeing, by far, and the biggest foreign beneficiaries are large and sometimes state-owned companies, such as Pemex, the national fossil fuel company of the Mexican government. The Small Business Administration subsidizes small business start-ups, the procurement cycle for defense caters to corporate interests, and the sugar and dairy lobbies still pull in outrageous subsidies and price protection programs, mostly at the expense of ordinary American consumers, including low-income consumers.
…overall, lobbyists are not running the show. The average big company has only 3.4 lobbyists in Washington, and for medium-size companies that number is only 1.42. For major companies, the average is 13.9, and the vast majority of companies spend less than $250,000 a year on lobbying. Furthermore, a systematic study shows that business lobbying does not increase the chance of favorable legislation being passed for that business, nor do those businesses receive more government contracts; contributions to political action committees are ineffective too.
If you are looking for a villain, it is perhaps best to focus on how corporations sometimes help poorly staffed legislators evaluate and draft legislation. But again, national policy isn’t exactly geared to making businesses, and particularly big business, entirely happy.
References and further support are available in the book,
Is day care bad for kids, especially well-off kids?
Exploiting admission thresholds to the Bologna daycare system, we show using RDD that one additional daycare month at age 0–2 reduces IQ by 0.5% (4.7% of a s.d.) at age8–14 in a relatively affluent population. The magnitude of this negative effect increases with family income. Similar negative impacts are found for personality traits. These findings are consistent with the hypothesis from psychology that children in daycare experience fewer one-to-one interactions with adults, with negative effects in families where such interactions are of higher quality. We embed this hypothesis in a model that lends structure to our RDD.
Here is the forthcoming JPE article by Margherita Fort, Andrea Ichino and Giulio Zanella. And here are various ungated versions. (Do any of you have the links handy for other papers with similar results? They do exist.)
Quick quiz, we should:
a. Subsidize day care heavily
b. Not subsidize day care, or
c. Wait and see until more evidence is in.
Who is passing and failing this quiz? How about you?
Which countries are best for creating and encouraging women chess players?
Via David Smerdon, here is the picture:
To oversimplify only a wee bit, it is the countries with less gender equality which have more female chess players, relative to male chess players. Here is some description:
Denmark is the worst country in our list of participation, with only one female player to roughly 50 males, while the rest of Scandinavia as well as most of western Europe also languish at the bottom.
On the other hand, some of the best countries show evidence of the effect of female role models, and would be no surprise to players familiar with women’s chess history. Georgia (ranked 5th) and China (ranked 4th) both featured multiple women’s World Champions. There are also some high rates from a few unexpected sources: Vietnam (1st), the United Arab Emirates (2nd), Indonesia (8th), and even Kenya (12th) really buck the trend. Interestingly, a lot of the best countries for female chess players are in Asia. Besides Vietnam, there are five other countries in the best ten, and if I am a little more lenient with the chess population cut-offs, Mongolia and Tajikistan would also be in there.
Here is one cited hypothesis:
Could it be that, deep down, women just don’t like chess as much as men?
I consider that to be possible, but unconfirmed. In any case, the lesson is that gender imbalance in a particular field can be correlated with greater equality of opportunity overall.
Saturday assorted links
1. “Employing a comprehensive dataset on the incidence of hate crime across Germany, we first demonstrate that hate crime rises where men face disadvantages in local mating markets. Next, we deploy an original four-wave panel survey to confirm that support for hate crime increases when men fear that the inflow of refugees makes it more difficult to find female partners. Mate competition concerns remain a robust predictor even when controlling for anti-refugee views, perceived job competition, general frustration, and aggressiveness. We conclude that a more complete understanding of hate crime must incorporate mating markets and mate competition.” Link here.
2. Bryan Caplan on *Big Business* and crony capitalism.
3. Iceland fact of the day: “Sixty-four percent of students are women, the highest percentage of any European nation.”
4. How to get to ngdp targeting.
5. I’ve read so many bad or even absymal critiques of Facebook, but Bret Stephens (NYT) wrote a good one.
The progressive nature of big business
That is my new opinion piece for The Washington Post, derived from my Big Business: A Love Letter to an American Anti-Hero. Here is one excerpt:
Yet big business often has been a strong progressive force in U.S. history, not only by providing jobs but also by spreading emancipatory practices and norms.
For instance, McDonald’s, General Electric, Procter & Gamble and many of the big tech companies offered health care and other legal benefits for same-sex partners well before the Supreme Court legalized gay marriage in 2015. In addition to dramatically improving the lives of thousands of Americans, the companies’ moves put a mainstream stamp of approval on the notion of same-sex marriage itself.
And:
The larger the business, the more tolerant the institution is likely to be of employee and customer personal preferences. A local baker might refuse to make a wedding cake for a gay couple for religious reasons, but Sara Lee, which tries to build very broadly based national markets for its products, is keen on selling cakes to everyone. The bigger companies need to protect their broader reputations and recruit large numbers of talented workers, including from minority groups. They can’t survive and grow just by cultivating a few narrow networks as either their workers or customers.
There are further arguments at the link.
What does a continually improving labor market imply about monetary policy?
Not as much as many people think. As you may know, yesterday’s job market was quite good (NYT) and it is now many years of labor market recovery. Does this mean the Fed should have been easier with money say two or three years ago? No, that doesn’t follow. Let’s talk through a few points:
1. Aggregate demand shocks are major causes of recessions, and when they come you want the central bank to lean against them very, very hard, even if that means higher than average price inflation.
2. The early problems are mostly nominal. For whatever reasons (morale? long-term implicit contracts?), firms lay off some workers rather than cutting their nominal wages. This is a big reason why downturns involve so much unemployment, but to the extent the central bank can keep up nominal demand, at least some of this unemployment can be avoided or at least smoothed out over time.
3. Once those workers are unemployed, nominal stickiness starts to cease to be the major problem. Real rigidities and stickiness become progressively more important with the passage of time. First, the unemployed don’t even have a nominal wage to be sticky in the first place, and yes some of them are excessively stubborn with their reservation wages for accepting new jobs but that looks suspiciously like voluntary unemployment, albeit with some behavioral irrationality mixed in. But no, the main problem still is not voluntary unemployment, I am saying if the only rigidities were nominal it would be a problem of voluntary unemployment, a very different claim. I’ll come back to this shortly.
4. In the very early stages of a recession, there might simply be no jobs available, period, due to uncertainties and liquidity shocks. But usually within a year or two, a whole host of jobs open up, they just may not be good jobs for many of the unemployed. Often they are bad jobs, for reasons which relate to real rigidities, not nominal rigidities. Individuals need to be rematched to new jobs, and that process may or may not go well.
5. Here is a typical real rigidities story (but not the only one): you aspire to be an upper to mid level manager, and you are offered a job as a cashier at Walmart, or you could get such a job if you tried. You don’t take the job, because you fear its presence on your resume will shunt you onto a permanently lower career track. That is indeed a problem, and it is a real rigidity, not a nominal one. It can keep you unemployed, even if you might otherwise prefer to have the work on a temporary basis.
6. As the economy grows in real terms, the quality of jobs available will be upgraded, and eventually the unemployed are offered jobs which are worth taking. This process can be fast or slow, but in the recent recovery it has been relatively slow.
7. As more people are taking jobs, yes demand is rising but supply is rising also. The two are rising together. It is not wrong to say “greater demand is reemploying people,” but it is misleading. It is more accurate to say “real demand is rising, coincident with growing output, job quality is improving, uncertainty is being resolved, and the economy is doing a successively better job at solving the matching problem in its labor markets.”
8. In that same setting, simply boosting nominal demand with lower interest rates and higher price inflation won’t necessarily help employment much. You might get a slight labor supply increase through the not very impressive Lucas supply curve (people confusing nominal and real changes).
8b. To be sure, there is likely no harm from the easier monetary policy since price inflation has been slightly below target. I do not hate these proposed monetary easings, I just don’t think they are likely to matter much. Telling me that “higher demand has been reemploying workers” doesn’t impress me. Telling me “the labor market recovery has been underway for a long time” also does not impress me. Neither claim implies that a nominal push to demand will do the trick, if anything they might imply the contrary.
9. If the labor market recovery has been underway for a long time, that is a sign the coordination problem has been a real one rather than a nominal one. It is a sign that earlier Fed easing simply may not have mattered much.
10. You might notice that outside of emergency situations, such as 1929 or 2008 (see point #1), economists struggle mightily to demonstrate that money matters at all. I think Christina Romer has shown that surprise deflationary shocks do matter and are bad. After that, it is still up in the air, as indeed this analysis implies.
Everything I am writing is consistent with mainstream research economics, and the best and most sophisticated versions of Keynesian economics. I know it is not usually what you read on the internet. As a side note and exercise, it is worth pondering what this same framework might imply for the efficacy of fiscal policy, noting the answer will be “under what conditions?” rather than yes or no.
Sludge Audits
Consumers, employees, students, and others are often subjected to “sludge”: excessive or unjustified frictions, such as paperwork burdens, that cost time or money; that may make life difficult to navigate; that may be frustrating, stigmatizing, or humiliating; and that might end up depriving people of access to important goods, opportunities, and services. Because of behavioral biases and cognitive scarcity, sludge can have much more harmful effects than private and public institutions anticipate. To protect consumers, investors, employees, and others, firms, universities, and government agencies should regularly conduct Sludge Audits to catalogue the costs of sludge, and to decide when and how to reduce it. Much of human life is unnecessarily sludgy. Sludge often has costs far in excess of benefits, and it can have hurt the most vulnerable members of society.
That is the abstract of a new paper by Cass Sunstein.
Friday assorted links
1. Lighthouse provision in premodern Japan.
2. A paper full of data on economists signing petitions (pdf).
3. A new kind of mood affiliation markets in everything: Burger King meals focused on (bad) moods.
4. More markets in everything: “The Newest Trend in Bars: No Booze.” And chess coat rack, with a Caro-Kann position.
Dept. of Uh-Oh, college and mobility edition
Intergenerational mobility is higher among college graduates than among people with lower levels of education. In light of this finding, researchers have characterized a college degree as a great equalizer leveling the playing field, and proposed that expanding higher education would promote mobility. This line of reasoning rests on the implicit assumption that the relatively high mobility observed among college graduates reflects a causal effect of college completion on intergenerational mobility, an assumption that has rarely been rigorously evaluated. This article bridges this gap. Using a novel reweighting technique, I estimate the degree of intergenerational income mobility among college graduates purged of selection processes that may drive up observed mobility in this subpopulation. Analyzing data from the National Longitudinal Survey of Youth 1979, I find that once selection processes are adjusted for, intergenerational income mobility among college graduates is very close to that among non-graduates. This finding suggests that expanding the pool of college graduates per se is unlikely to boost intergenerational income mobility in the United States. To promote mobility, public investments in higher education (e.g., federal and state student aid programs) should be targeted at low-income youth.
That is from new research by Xiang Zhou, via the excellent Kevin Lewis.
What is China’s Belt and Road?
Another form of domestic politics? Here is Andrew Batson on his blog:
The Belt and Road is really the expansion of a specific part of China’s domestic political economy to the rest of the world. That is the nexus between state-owned contractors and state-owned banks, which formed in the domestic infrastructure building spree construction that began after the 2008 global financial crisis (and has not yet ended).
Local governments discovered they could borrow basically without limit to fund infrastructure projects, and despite many predictions of doom, those debts have not yet collapsed. The lesson China has learned is that debt is free and that Western criticisms of excessive infrastructure investment are nonsense, so there is never any downside to borrowing to build more infrastructure. China’s infrastructure-building complex, facing diminishing returns domestically, is now applying that lesson to the whole world.
In Belt and Road projects, foreign countries simply take the place of Chinese local governments in this model (those who detect a neo-imperial vibe around the Belt and Road are, in this sense, onto something). Even the players are the same. In the 1990s, China Development Bank helped invent the local-government financing vehicle structure that underpinned the massive domestic infrastructure. Now, China Development Bank is one of the biggest lenders for overseas construction projects.
Those who defend the Belt and Road against the charge of debt-trap diplomacy are technically correct. But those same defenders also tend to portray the lack of competitive tenders and over-reliance on Chinese construction companies in Belt and Road projects as “problems” that detract from the initiative’s promise. They miss the central role of the SOE infrastructure-complex interest group in driving the Belt and Road. Structures that funnel projects funded by state banks to Chinese SOEs aren’t “problems” from China’s perspective–they are the whole point.
The fact that this model was dubbed the “Belt and Road Initiative” and turned into a national grand strategy by Xi Jinping effectively gave the SOE infrastructure complex carte blanche to pursue whatever projects they can get away with. These projects were no longer just money-makers for SOEs, but became a way to advance China’s national grand strategy–thereby immunizing them from criticism and scrutiny.
And Andrew is always worth reading on music and jazz.