Category: Current Affairs

Tax salience and the new Trump tariffs

That is the topic of my latest Bloomberg column.  Here is one excerpt:

…tariffs distort consumer decisions more than sales taxes do. It may well be true that consumers don’t notice tariffs as such. But they respond by buying less, lowering their well-being and also possibly lowering GDP and employment.

It gets worse yet. President Donald Trump’s tariffs typically are applied to intermediate goods coming from China, such as circuit boards and LCD screens. The end result is more expensive computers at the retail level. But most consumers see only the higher price for computers. They probably don’t know which intermediate goods Trump put the tariffs on, and for that matter many U.S. consumers probably don’t even know what circuit boards are, much less where they come from.

The end result is that the tariffs are somewhat invisible, or at least they are invisible as tariffs. It’s highly unlikely there will be mass protests against a 10 percent tariff on circuit boards. No one will get “circuit board tariff charge” bill in the mail, as they might with their property taxes, and unlike gasoline, people don’t buy computers very often.

Most generally, it can be said that the new Trump policy makes the high prices salient, but the underlying tariffs not very salient at all. This is the worst possible scenario. The higher prices will reduce consumption and output, yet the invisibility of the tariffs will limit voter pushback.

Do read the whole thing.

Are generational or cohort-level changes strong?

Here is the view of Kali H. Trzesniewski and M. Brent Donnellan, in their piece “Rethinking “Generation Me”: A Study of Cohort Effects from 1976-2006”:

Social commentators have argued that changes over the last decades have coalesced to create a relatively unique generation of young people. However, using large samples of U.S. high-school seniors from 1976 to 2006 (Total N = 477,380), we found little evidence of meaningful change in egotism, self-enhancement, individualism, self-esteem, locus of control, hopelessness, happiness, life satisfaction, loneliness, antisocial behavior, time spent working or watching television, political activity, the importance of religion, and the importance of social status over the last 30 years. Today’s youth are less fearful of social problems than previous generations and they are also more cynical and less trusting. In addition, today’s youth have higher educational expectations than previous generations. However, an inspection of effect sizes provided little evidence for strong or widespread cohort-linked changes.

The pointer is from @hardsci.  As he (Sanjay) notes on Twitter: “Researchers these days just don’t make cohort arguments like they used to”  And here are some related results on narcissism.

The incidence of tariffs on Chinese goods

…start-ups are likely to be hit hardest, whether their products are made in China or they import components and do the final assembly work in the US.

“Your resistor or diode is already costing you 10 times what you’d pay if you were Apple,” said Mr Kelly. Slapping a tariff on these higher prices will add to the pain, he said. Companies such as Brilliant face the extra challenge of trying to price their products in a way that will generate demand in new markets that have yet to establish themselves.

…breaking into the mass market usually involves cutting the price, something that is now much harder.

Furthermore:

In the technology industry, hardware start-ups face some of the longest odds for success. Until they reach high enough volumes to strike better deals with suppliers and support the costs of brand marketing it is hard to make the economics work, and profit margins are notoriously low. “When you’re in hardware, a 25 per cent tariff can be a death knell to your business,” says Nate Kelly, a supply chain expert who now heads TrackR, a company that makes Bluetooth devices. The lack of a financial cushion or a diversified set of products means many companies will not be able to “ride this out for six months or a year”, he said.

And Mexico will gain, China will lose.  That is from Richard Waters at the FT.

My Conversation with Michele Gelfand

Here is the audio and transcript, and here is the summary:

Michele Gelfand is professor of psychology at the University of Maryland and author of the just-released Rule Makers, Rule Breakers: How Tight and Loose Cultures Wire Our World. In her conversation with Tyler, Michele unpacks the concept of tight and loose cultures and more, including which variable best explains tightness, the problem with norms, whether Silicon Valley has an honor culture, the importance of theory and history in guiding research, what Donald Trump gets wrong about negotiation, why MBAs underrate management, the need to develop cultural IQ, and why mentorship should last a lifetime.

Here is one excerpt:

COWEN: As you know, it’s a common distinction in cross-cultural analysis to call some cultures individualistic and others collectivistic. How does tightness and looseness differ from that distinction? What do you pick up that, say, the work of Triandis does not?

GELFAND: Actually, Triandis is my mentor. I went to Champaign to work with him. I did a lot of research on collectivism and individualism. For a long time, that was the one dimension that we looked at in cross-cultural psychology.

It’s almost akin to, in personality psychology, only studying extroversion to the neglect of other dimensions, like neuroticism. In cross-cultural psychology, we got a little bit narrow in what we were studying. Collectivism-individualism is related to tightness but distinct.

Part of the problem we’ve had is, we’ve confounded cultures in our research. We’ve been studying East Asia, which is both tight and collectivistic, with the United States and other Western cultures, which tend to be loose and individualistic. So they have been confounded.

But when you think about the off-diagonals of that two-by-two, you can imagine cultures like Germany, Switzerland, Austria that tend to be pretty individualistic. They emphasize privacy. They’re not hugely group and family oriented, but they’re relatively tight. They have strong rules and punishments for deviance.

On the flip side, you can think about Latin American cultures — in our data, that’s Brazil or Spain — that tend to be pretty family oriented and pretty collectivistic, but they’re rather loose.

In a lot of ways, you can disentangle that variation, even if they’re related. They tend to be related about 0.4. That’s found both in modern nations and also traditional societies. At the state level, they also tend to be related but again distinct. Only in that case, it’s about 0.2 or 0.3, the correlation between tightness and collectivism.

And:

COWEN: Overrated or underrated, Staten Island?

GELFAND: [laughs] I would say probably underrated. That’s because I actually am familiar with Staten Island. We have relatives that live there. It’s probably the last undiscovered place around the city. Brooklyn has become a chichi place to live, but Staten Island has not. There’s great delis there. I’ve spent some time there.

And:

COWEN: Putting aside your political views, but just if you observe Donald Trump as a negotiator — as a psychologist, what strikes you?

GELFAND: Donald Trump has a very classic negotiation style. It’s a distributive negotiation style. It’s a win-lose style. It works in certain contexts, especially contexts where there’s one issue or when there’s very little expected future interaction.

What Donald Trump does is, he takes that style to international [laughs] politics where these contexts, the structure of these situations is very different. There’s usually many issues at the table. There’s expected future interaction…His style is really mismatched with the context that he’s in.

Many of the best parts are at or near the end, so do read or listen all the way through.  And you can buy Michele’s book here.

What has and has not changed in Guangzhou

That is the topic of my latest Bloomberg column, here is the opener:

I hadn’t been to Guangzhou in more than 30 years, and I wanted to see what I would remember.

And here is one bit:

How about the train ride between Hong Kong and Guangzhou? In 1988 I saw lone farmers plowing the field with their oxen. These days the journey brings you through Shenzhen, China’s tech capital, where many iPhones are assembled and which has eclipsed Guangzhou as a source of economic dynamism.

And yet I cannot conclude that Guangzhou is altogether a story of change and change alone.

That all said, Guangzhou is no longer an economic leader in China.  Overall it struck me that Guangzhou has become a bit of an economic backwater, albeit at an enormous size and decent (compared to the rest of China) standard of living.

American competitive democracy survives

Most elections in the United States are not close, which has raised concerns among social scientists and reform advocates about the vibrancy of American democracy. In this paper, we demonstrate that while individual elections are often uncompetitive, hierarchicaltemporal, and geographic variation in the locus of competition results in most of the country regularly experiencing close elections. In the four-cycle period between 2006 and 2012, 89% of Americans were in a highly competitive jurisdiction for at least one office. Since 1914, about half the states have never gone more than four election cycles without a close statewide contest. More Americans witness competition than citizens of Canada or the UK, other nations with SMSP-based systems. The dispersed competition we find also results in nearly all Americans being represented by both political parties for different offices.

That is from Bernard L. Fraga, and Eitan D. Hersh, via the excellent Kevin Lewis.

The rise of the Swedish Democrats

There is a new research paper on this topic, from Ernesto Dal Bo, Frederico Finan, Olle Folke, Torsten Persson, and Johanna Rickne:

We study the rise of the Sweden Democrats, a radical-right party that rose from negligible size in 2002 to Sweden’s third largest party in 2014…We take a starting point in two key economic events: (i) a series of policy reforms in 2006-2011 that significantly widened the disposable-income gap between “insiders” and “outsiders” in the labor market, and (ii) the financial-crisis recession that doubled the job-loss risk for “vulnerable” vs “secure” insiders. On the supply side, the Sweden Democrats over-represent both losing groups relative to the population, whereas all other parties under-represent them, results which also hold when we disaggregate across time, subgroups, and municipalities. On the demand side, the local increase in the insider-outsider income gap, as well as the share of vulnerable insiders, are systematically associated with larger electoral gains for the Sweden Democrats. These findings can be given a citizen-candidate interpretation: economic losers (as we demonstrate) decrease their trust in established parties and institutions.

Is it being an economic loser that makes you support the Sweden Democrats, or simply observing a lot of economic losers around you, the latter having been the case for Donald Trump’s support?  This Twitter thread gives some key pictures from the paper and summary of results.

That was then, this is now

Four decades ago Venezuelans could fly in and out of Caracas’s Maiquetía airport on Concorde. These days they are leaving the country on foot — walking over the border into Colombia, traipsing down the Andes to Ecuador and Peru or trudging through the Amazon basin to Brazil. As the economy collapses, the Venezuelan exodus “is building to a crisis moment”, the UN has warned. Drawing comparisons with the desperate journeys of Syrians and Africans through the Mediterranean in recent years, it says 2.3m people — 7 per cent of the population — have left Venezuela since 2015. On Monday, President Nicolás Maduro put the figure at just 600,000, and his vice-president Delcy Rodríguez said the outflow was “normal”. Outcry over the exodus, she said, was “designed by the Pentagon to justify intervention in Venezuela”.

That is from Gideon Long in the FT.

Angered, Sweden

I wish to visit Angered, Sweden (sometimes called Angered Centrum), yes that is the name of the place:

When I entered this mysterious end station. I didn’t expect to find a shopping center that had so many Halal restaurants, Turkish delights stores and Kebab places. I love to eat Kebabs here in Norway with Halal meat, so for me its not a problem eating this. I rather found this place interesting, because it had all of the world foods in one place.

At the end of this shopping center, I found ICA store and here I found some Swedish people. But mostly everywhere I went there was foreigners…Why is Angered Centrum almost empty of Swedish people? Have the government in Sweden made this to a place so that foreigners and Swedish people should live so far apart from each other that it would reduce conflicts?

Here is more.  The Wikipedia page of Angered is unusual, it serves up tidbits such as:

The hilly terrain forced the planners to build the different parts of Angered at some distance from each other.

It turns out that Angered was modeled after Brasilia, and it was a major center for public housing investment.

The locale can be subdivided further yet:

Of those born in Hjallbo, a district of Angered, three-quarters have a foreign background. This compared with a half two decades ago and just 6.5 per cent in all of Sweden.

Added to this sense of cultural and social isolation is the suburb’s reputation for criminality and violence. Nawol and Hamdi, two Somali teenagers in hijabs, voice their concerns about living in a neighbourhood that has long been characterised as a ghetto. “I don’t like living in Angered. A lot of people do bad things,” said Nawol, 19. Hamdi added: “There are a lot of gangsters.”

There is a Swedish election on Sunday, and to counter the Sweden Democrats many of the other Swedish parties are moving to the right on immigration, the median voter theorem in slow motion, so to speak.

Exactly what kind of institutional failure is this?  Political?  Intellectual?  Democratic?  The absence of real democracy?  I should stress that I am happy to live near Somali and Yemeni women in hijab (and not) in northern Virginia, and I believe American assimilation continues to work reasonably well, including for Muslims and in fact especially for Muslims overall.  But the formula seems to work less well in Sweden, with its tighter social structures and more generous welfare benefits.  What exactly went wrong?  What is the final equilibrium?  Will anyone ever be able to say again “if only they had a Nordic-style social welfare state”?

Don’t blame the fake news, it’s the truth that is the problem

That is the topic of my latest Bloomberg column, here is one bit:

The world of the internet – fundamentally a world of information – is reporting on the failures of the elites 24/7. And while pretty much every opinion is available, some have more resonance than others. Is it not the case that, post-2008, most people really are skeptical of the ability of American elites to prevent the next financial crisis? Going even further back, I recall the optimism surrounding the Mideast peace talks of the 1970s or the Oslo accords of the 1990s. Hardly anyone honest has the same positive feelings about today’s efforts at peace talks.

Again, these impressions are based on actual information. An informed populace, however, can also be a cynical populace, and a cynical populace is willing to tolerate or maybe even support cynical leaders. The world might be better off with more of that naïve “moonshot” optimism of the 1960s.

…Instead of today’s swamp of negativism, do you not instead long for a few rousing hymns, a teary rom-com happy ending, a non-ironic exhibit of wonderful American landscape paintings? Yet all these cultural forms are largely on the wane. It’s no accident that the hugely successful romantic comedy “Crazy Rich Asians” is set in Singapore.

Homer > Socrates!

Don’t Get Into a Knife Fight with Larry Summers

Larry Summers is not happy with Joseph Stiglitz’s piece The Myth of Secular Stagnation, which argues that the idea of secular stagnation as put forward by Summers and others was little more than a mask for poor economic policy and performance under the Obama administration.

Those responsible for managing the 2008 recovery (the same individuals bearing culpability for the under-regulation of the economy in its pre-crisis days, to whom President Barack Obama inexplicably turned to fix what they had helped break) found the idea of secular stagnation attractive, because it explained their failures to achieve a quick, robust recovery. So, as the economy languished, the idea was revived: Don’t blame us, its promoters implied, we’re doing what we can.

Larry responds:

I am not a disinterested observer, but this is not the first time that I find Stiglitz’s policy commentary as weak as his academic theoretical work is strong.

…In all of my accounts of secular stagnation, I stressed that it was an argument not for any kind of fatalism, but rather for policies to promote demand, especially through fiscal expansion. In 2012, Brad DeLong and I argued that fiscal expansion would likely pay for itself. I also highlighted the role of rising inequality in increasing saving and the role of structural changes toward the demassification of the economy in reducing demand.

…Stiglitz condemns the Obama administration’s failure to implement a larger fiscal stimulus policy and suggests that this reflects a failure of economic understanding. He was a signatory to a November 19, 2008 letter also signed by noted progressives James K. Galbraith, Dean Baker, and Larry Mishel calling for a stimulus of $300-$400 billion – less than half of what the Obama administration proposed. So matters were less clear in prospect than in retrospect.

Indeed, Stiglitz’s piece is difficult to understand as economic commentary because it’s hard to see much daylight between Stiglitz and Summers on actual diagnosis or policy. Stiglitz, for example, points to secular reasons for stagnation when he writes:

The fallout from the financial crisis was more severe, and massive redistribution of income and wealth toward the top had weakened aggregate demand. The economy was experiencing a transition from manufacturing to services, and market economies don’t manage such transitions well on their own.

Gautti Eggerstson is not as entertaining as Summers but he offers useful background.

Kiwi cat quotas?

A regional council in New Zealand has proposed banning all domestic cats in an attempt to protect native animals.

Environment Southland’s “pest plan” calls for all domestic cats in the region to be neutered, microchipped and registered. Then, when a cat dies, residents would not be permitted to have another.

“We’re not cat haters,” John Collins, of the Omaui Landcare Trust told Newshub. “But we’d like to see responsible pet ownership and this really isn’t the place for cats.”

Ali Meade, the council’s biosecurity operations manager, said that if the move was approved the improvement for the environment and bird life would be vast…

Kapiti Island’s Kotuku Parks subdivision has a no-cat rule and Auckland council is also looking at a plan to euthanise any cat caught in an “ecologically significant site” without a microchip.

Here is the full story, via Ian Bremmer.

What explains America’s economic anomalies?

Apart from low productivity growth, of course.  That is the topic of my latest Bloomberg column.  Wages have been sluggish throughout the recovery, profits on capital seem to be high, there is a domestic investment drought, and the onset of the internet and globalization make many of the “monopolization” charges less than plausible.  Here is one possible route of inquiry:

Capital today can cross borders more easily than it could a few generations ago. That might keep real wages down in the U.S. If wages threaten to rise during an economic recovery, for instance, it is then profitable to invest more capital abroad, where wages usually are lower. The end result resembles what economists call a “Malthusian” equilibrium. That means there is an upper limit to returns to labor: They cannot exceed the cost of bringing more labor to market, for instance by investing abroad (or perhaps building robots). Even a long recovery won’t help wages rise above that limit.

This same hypothesis can help explain both the U.S. investment drought and supercharged growth in many emerging economies. If capital is flowing overseas, that will boost growth abroad and worsen a shortfall of investment at home. Too much foreign capital flowing into the U.S. is absorbed by Treasury securities, rather than the private sector.

What about the high rates of return measured for capital investment in the U.S.? It seems strange to have high profits but low investment. Why not invest more to earn more money, thereby leading to an investment glut until the profits are competed away?

One hypothesis is that investors now expect a higher rate of return for domestic investments, a possibility suggested by economists Loukas Karabarbounis and Brent Neiman in a recent paper. Let’s say that entrepreneurs used to be willing to make domestic investments for an expected 7 percent return but now they demand at least 10 percent.

Entrepreneurs will cut back on investment, but the remaining projects will have higher returns on average, more closely bunched around 10 percent than 7.

What accounts for this increased reluctance? Karabarbounis and Neiman consider factors such as greater risk aversion. A simpler alternative explanation, consistent with my capital mobility hypothesis, is that newly available rates of return in other countries are high, and that means competing investments in the U.S. will need to offer higher returns too.

Do read the whole thing, I also consider potential flaws in the argument, such as capital possibly not being mobile enough.

My Conversation with Claire Lehmann of Quillette

Here is the transcript and audio, definitely recommended.  Here is part of the summary:

She and Tyler explore her ideas about the stifling effect of political correctness and more, including why its dominant form may come from the political right, how higher education got screwed up, strands of thought favored by the Internet and Youtube, overrated and underrated Australian cities, Aussie blokes, and more.

Here is an excerpt:

COWEN: When did political correctness become a major issue, or become a major issue again? And why do you think it happened exactly then?

LEHMANN: That’s a good question, and I don’t know if I have the answer. I know that there were lots of debates around political correctness in the early ’90s, for example.

COWEN: Yes, and it seems to fade away and then come back.

LEHMANN: Yeah. That’s when Camille Paglia was talking about PC, and Robert Hughes had a book, The Culture of Complaint.

I’ve noticed in my own life that I started noticing political correctness around 2007. At the time, I thought it had something to do with the business model of Internet publishing.

That was when Gawker and the blog Jezebel was really popular. It was established in 2007, and then it got very popular over the next couple of years. I thought that there were a lot of clickbait kind of articles promoting these really simplistic black-and-white narratives of oppression.

Unless one had reasonable critical thinking skills, I could see how young people could be influenced by that kind of content coming out. I think there’s something to do with the Internet and the way the media has had to adapt to this new business model where you have to drive . . . You have to get lots of views, lots of hits, millions more than you would with the newspapers.

I think it’s something to do with that, but that’s probably just one variable in many other factors.

COWEN: What do you think of the hypothesis that political correctness is a kind of virus that’s hijacked the left? It’s figured out some kind of weak entry point, and it’s come in and taken over parts of it, and it will bring down many victims with it, but actually, it’s crippling the left.

LEHMANN: Yep, yeah.

COWEN: True or false?

LEHMANN: Probably true.

COWEN: If one objects to that argument, we should in a sense encourage more of it, at least if we’re being pure utilitarians, or not?

And:

COWEN: Probably in the media? In general, intellectual life, but if you take, say, the United States as a whole, do you think it’s left-wing or right-wing political correctness that’s stronger and more destructive?

LEHMANN: Yeah, it’s probably right-wing political correctness.

A question from me:

COWEN: I’ve been speaking about the right in aggregate terms, but if you think of the effect of the Internet, which strands of the right do you think are favored, and which do you think are falling away because of Internet discourse? Because it shouldn’t favor it all equally, correct?

We also cover Australia vs. New Zealand, the masculine ethos of Australia and its origins, why PC is different in Australia, the movie Lantana (which we both strongly recommend), and yes Australian fashion.

Trump’s NAFTA renegotiation

That is the topic of my latest Bloomberg column, the deal will be “good enough,” but the method costly.  Here is one excerpt:

At what price? Canadians and Canadian politicians now feel slighted, and it will be harder for Canada to support U.S. initiatives, especially those led by Trump, in the future. It may be a long time before Canada feels like an even vaguely equal partner again. In the meantime, the U.S. and Canada have ongoing dealings and negotiations concerning water rights, border and migration issues, intelligence sharing, terror prevention, and presenting a (relatively) united front against other foreign powers, including Russia in the Arctic. The marginal gains in trade just don’t seem worth the deterioration in the relationship.

And should Mexico really feel elevated by getting the first crack at the deal? Surely it must know that it might not be the favored party the next time around.

Do read the whole thing.  The best extraction of rent policy, of course, is simply to let Canada keep its gains from trade right now, but later demand larger concessions when it comes to Arctic policy, which will really matter.  That’s assuming nationalism, of course, as a kind of second best rejoinder.  I am more comfortable with the alternative position that the citizens in the other NAFTA member countries count for just as much as Americans.