Category: Current Affairs
The economics of Brat
House Majority Leader Eric Cantor just lost a historic primary race — to an economist. Prof. David Brat chairs the Department of Business and Economics at Randolph-Macon College, a liberal arts school in Ashland, Virginia. Vox read over some of his academic research, and it helps give you a sense of what the politician at the center of tonight’s political earthquake believes.
…take Brat’s paper “Economic Growth and Institutions: The Rise and Fall of the Protestant Ethic?” Here, Brat makes the argument (amusingly citing the liberal economist Brad DeLong) that the spread of Protestantism in Europe was a key cause of European nations being wealthier than other countries. “Give me a country in 1600 that had a Protestant led contest for religious and political power,” he writes, “and I will show you a country that is rich today.”
In “Cross-Country R&D and Growth: Variations on a Theme of Mankiw-Romer-Weil,” Brat and a co-author argue that countries with stronger domestic research and development bases are likely to be wealthier (though research spilling over from one country to another can narrow the gap). In a second co-authored paper, he suggested that countries that remain democracies for longer periods of time tend to experience somewhat higher levels of economic growth.
Brat also seems to be a fan of Deirdre McCloskey on economic method. The full story is here.
Afghan real business cycle theory
For the past decade, billions of dollars in American aid poured into one of the world’s poorest countries, providing previously unimaginable opportunities to thousands of Afghan workers.
Now, the boom is over. The Afghan economy, which had been expanding by as much as 14 percent a year, has slumped. Growth this year is expected to be just 3.2 percent, according to the World Bank. That slowdown reflects the declining American spending and also apprehension about security.
There is more here, tragic throughout. I like to say to my students “no matter how many good arguments you think you have against real business cycle theory, it explains an overwhelming preponderance of the business cycles in the history of the human race.”
And don’t get any silly ideas from seeing the word “spending” in that text above. This is an RBC story, and while nominal rigidities may well play a further role in the contraction, ups and downs in the real demand for Afghani products is the driving factor. If an economist wins a Nobel Prize and suddenly is in stronger demand on the lecture circuit, that is mainly an “RBC boom” for that economist, not a Keynesian mechanism just because others are “spending more” on him or her.
China fact of the day
Average capacity utilization is now below 60 percent.
The article is scary throughout.
Is there a paradox of low market volatility?
Wall Street’s “fear gauge” has fallen to a seven-year low, helping propel US stocks to a record peak but suggesting investor complacency reigns over financial markets.
The CBOE Vix equity volatility index, a barometer of investor sentiment, slipped below 11 on Friday, nearly half the long-term average and its lowest level since February 2007. The Vix has fallen in recent years in conjunction with a robust recovery in equity prices from crisis levels as central banks pumped money into the financial system.
Now, it seems the Fed would be less afraid if it saw investors being more afraid, or at least that is the new conventional wisdom. That is a coherent view if the Fed knows that it doesn’t know what it is doing with the unwind of the taper and the like. The Fed has private information that things may be screwy, but private investors don’t have that same information. The Fed then thinks that investors might thus be overextending themselves and then the Fed gets worried all the more.
But is that, taken alone, a coherent equilibrium of beliefs? Not yet, because it seems someone’s beliefs should have to budge.
So how does all this hang together? The Fed doesn’t want to crush the market, it just wants to test whether investors might in fact have some private information of their own. By “leaking” that it is worried about low volatility in the market, the Fed can see whether investors suddenly panic or whether they have a relatively firm basis for not feeling so worried.
And so far investors have not panicked, quite the contrary. The relatively sanguine beliefs of private investors thus seem to have a fair amount of depth. The Fed has nudged investors, to learn something about the shape of the response curve, and those investors have held their place or warmed to the data all the more.
So if you believe in rational actor models (a big if, admittedly), you should be bullish about asset prices looking forward. Maybe about the real economy too. We’re seeing lots of good numbers about credit for the United States and that is a significant leading indicator.
Has the Turing test now been passed?
A programme that convinced humans that it was a 13-year-old boy has become the first computer ever to pass the Turing Test. The test — which requires that computers are indistinguishable from humans — is considered a landmark in the development of artificial intelligence, but academics have warned that the technology could be used for cybercrime.
…Eugene Goostman, a computer programme made by a team based in Russia, succeeded in a test conducted at the Royal Society in London. It convinced 33 per cent of the judges that it was human, said academics at the University of Reading, which organised the test.
It is thought to be the first computer to pass the iconic test. Though there have claims other programmes have successes, those included set topics or question in advance.
A version of the computer programme, which was created in 2001, is hosted online for anyone talk to. (“I feel about beating the turing test in quite convenient way. Nothing original,” said Goostman, when asked how he felt after his success.)
The computer programme claims to be a 13-year-old boy from Odessa in Ukraine.
So far I am withholding judgment. There is more here, lots of Twitter commentary here. By the way, here is my 2009 paper with Michelle Dawson on what the Turing test really means (pdf).
Average is Still Over
Unemployment fell from 3.3 to 3.2 percent for people with a bachelor’s degree or more, and from 5.7 to 5.5 percent for those with some college. But it actually rose from 6.3 to 6.5 percent for people with only a high school diploma, and from 8.9 to 9.1 percent for those without one.
In other words, our polarized labor market isn’t getting any less so. The Cleveland Fed points out that routine jobs disappeared during the Great Recession, and haven’t come back during the not-so-great-recovery — which partly explains why our economic upswing, such as it is, has been much less dramatic for the least educated.
That is Matt O’Brien, there is more here.
The Georgia Tech online program is going pretty well
Administrators at the Georgia Institute of Technology are optimistic but “not declaring victory” after one semester of its affordable online master’s degree program in computer science. While the program has been well-received by students, administrators are still striving to solve an equation that balances cost, academic quality and support services.
“We’re not all the way there yet, but I couldn’t ask for a much better start,” Zvi Galil, dean of the College of Computing, wrote last month in an email to Georgia Tech faculty on the one-year anniversary of the program’s announcement.
…The buzz around the online degree program appears to have benefited the residential program as well. This year, applications were up by 30 percent, the university reported.
There is more here.
From the comments, on the ECB
Ptumov writes:
First, on the market reaction. This action has been leaked/signaled to the markets in many ways over the last month. Therefore, to judge the market reaction to the ECB action, I think one should look at the change from early May to today.
Second, what’s the difference between non-sterilized SMP and QE? Not much, maybe maturity. I think this was the more significant development moving the market over the past month than negative deposit rates.
The new ECB measures
My perhaps overly simplistic view is that unless some of the various electorates hate the announced measures, they are not enough. An adequate response would be “we are going to raise the rate of price inflation, probably indefinitely, and furthermore countries x, y, and z have agreed they are not getting all of their money back. They agree to pick up the check and their electorates hate this but accept it as well and furthermore all the politicians involved are telling their electorates the same thing that they say amongst themselves. We also accept that weak lending to medium- and small-sized business represents a real competitiveness problem, a kind of Great Reset, and is not amenable to a simple monetary policy fix but we have to do something so we will try anyway.”
Obviously Draghi was in no position to make such an announcement. I once liked the idea of a negative rate on deposits at the central bank, but I no longer do. I think it will represent more of a tax on future lending than a spur to current lending. Denmark once tried such a policy and it didn’t do much for them. It is probably a one-off shot in the new “currency wars” but not a game-changer. In any case total bank deposits held at the ECB are relatively small.
We’ll see what else Draghi announces later today. European stocks are up, so it is hard to argue with this as an improvement over the status quo ex ante, which of course was terrible. Still, I am not as impressed as are many of the people in my Twitter feed.
A union for prisoners? (the culture that is Germany)
A group of inmates at a prison in Berlin have set up the world’s first union for prisoners, in an attempt to campaign for the introduction of a minimum wage and a pension scheme for convicts.
Inmates at Berlin Tegel jail, where the union is based, work regular shifts in kitchens and workshops, which in the view of the union makes them “de facto employees, just like their colleagues outside the prison gates”.
“Prisoners have never had a lobby working for them. With the prisoners’ union we’ve decided to create one ourselves,”said Oliver Rast, a spokesman for the group.
In Germany, as in Britain, prisoners are excluded from national pension schemes and the national minimum wage, which in Germany’s case is planned to come into effect in 2015 at €8.50 (£6.90) an hour. Inmates at Berlin Tegel earn between €9 and €15 per day, depending on their qualifications.
The Berlin union, which is registered as an association without legal status and claims to have collected numerous signatures within the prison, criticised the exclusion of prisoners from minimum wage plans.
It said the lack of pension schemes meant that many elderly inmates were released straight into poverty.
There is more here, via Mark Thorson.
A company just appointed an algorithm to its board
A Hong Kong VC fund has just appointed an algorithm to its board.
Deep Knowledge Ventures, a firm that focuses on age-related disease drugs and regenerative medicine projects, says the program, called VITAL, can make investment recommendations about life sciences firms by poring over large amounts of data.
Just like other members of the board, the algorithm gets to vote on whether the firm makes an investment in a specific company or not. The program will be the sixth member of DKV’s board.
From the comments, on Scottish independence
In response to my original post, Alex Buchanan writes:
Where to start? As a Scot living in Scotland and very much intending to vote YES I have to take issue on many things stated here. First of all your emphasis on the term “partnership”. There has never been a partnership between England and Scotland, Scotland has always been told what to do and if Scotland doesn’t like it Scotland has to lump it. We are more socially aware of our society with a more caring emphasis on what is good for OUR nation, Scotland, as a whole, not the dog eat dog right wing politics of England which is more of a right wing society. See Tory and ukip voting patterns. As for the currency we will be using? It will be sterling! Sterling does not just belong to England and if we’re in a currency union or not, we will still use sterling just like many other former commonwealth countries did before. The matter of us being in the EU is still debatable. Many EU institutions have intimated that Scotland will be welcome with open arms and even some unionist politicians have said we will have no problems joining. Ask your Westminster government they can get the answers. By the way I don’t think it has escaped your notice that we are already dominated by the EU and Westminster to boot. So what’s new? We can cut out the middle man whose sole interest is to look after London first. We are also getting an in-out referendum on membership of the EU in 2017. Can you tell me if we’ll still be in the EU after that? Tell me Tyler? What is the mechanism for evicting an already member of the EU? I don’t think there is one.
You cite that we have no practical reason to leave. Well how about self determination? How about being able to take decisions for ourselves? How about not going into useless wars? How about not having nuclear weapons, that England won’t have, located on our doorstep? Or how about having our wealth squandered on the South East of England while we are accused of being subsidy junkies? Are they practical reasons?
Alex Salmond has sound economics to back up his claim of Scots receiving more money under Independence. UK government records show that we contribute 9.9% (no doubt massaged down) of the exchequer’s total income, but we receive back only 9.3% back in total spend. Whereas the latest treasury figures were disowned straight away by the professor who they used as a source for their findings. The professor said that they had misrepresented his figures by a factor of 12 times more.
No being British is not good enough. I see day-in-day-out my country being turned into a region, a region of Britain you may say, but when in reality we all know what Britain means to the people down in England, don’t we? Britain simply means England in most people’s eyes in England. If you looked at the latest census carried out in Scotland you would have seen that nearly 75% of the population consider themselves Scottish and not British, only a mere 18% considered themselves Scottish and British. If it’s any consolation to you I can’t understand many English dialects either. Try listening to a Geordie, Scouser, Brommie, Cockney or even someone from Pashtun.
I expect the YES vote to prevail and I just want to point out to you that ignorant articles like this will hasten that vote.
He is an articulate fellow, but he hasn’t changed my mind, quite the contrary.
Very good sentences
…the feminist prescription doesn’t supply what men slipping down into the darkness of misogyny most immediately need: not lectures on how they need to respect women as sexual beings, but reasons, despite their lack of sexual experience, to first respect themselves as men.
And also:
…our society has lost sight of a basic human truth: A culture that too tightly binds sex and self-respect is likely, in the long run, to end up with less and less of both.
When do we want regulation in addition to a Pigouvian tax?
I haven’t followed the details of President Obama’s campaign to regulate fossil fuels through the EPA, but I thought it was worth reviewing when regulations might be desirable in addition to Pigouvian taxes.
One problem with a Pigouvian tax is you may fail to meet the threshold of a desired outcome, given that the market response to the tax is uncertain. For instance if the government put on a stiff carbon tax there is a chance dirty coal use simply might continue, albeit at higher prices, and thus no problem would be solved. A very very high tax could ensure a movement away from dirty coal but then perhaps the tax is much higher than it needs to be and that too will bring significant distortions.
In that case, it can in principle make sense to supplement the Pigouvian tax with some kind of “best practices” standard or quantity regulation on the side of emissions.
Now here’s the catch. Let’s say you have been arguing that the transition to green energy can be a smooth and certain glide. In that case you should want the tax only (admittedly you still might favor direct regulation as a substitute, given the absence of a tax).
Let’s say you wring your hands about the ability of the market to find a good substitute for the dirtier fossil fuels. You’re really not sure whether that can be done or not at a reasonable price.
In that case there is the uncertainty and you might favor the Pigouvian tax plus the regulation. Or if you are truly fearful about substitutability, and don’t assign high enough priority to emissions control and climate issues, you might want no tax and also no major regulations.
One odd mix of positions is “I’m very unsure how well and how smoothly this transition will go and I want only a Pigouvian tax.”
Another odd mix is “I’m sure this transition will be a smooth and easy glide, I want both Pigouvian taxes and lots of regulation.”
Pi.rate
The latest example of Intellectual Privilege running out of control is a guy who trademarked the symbol Pi with a period afterwards. Here is Jez Kemp:
Designers are in uproar and filing counter notices after print company Zazzle upheld a man’s claim to own the pi symbol on clothing.
Paul Ingrisano, a pirate living in Brooklyn New York, filed a trademark under “Pi Productions” for a logo which consists of this freely available version of the pi symbol π from the Wikimedia website combined with a period (full stop). The conditions of the trademark specifically state that the trademark includes a period.
The trademark was granted in January 2014 and Ingrisano has recently made trademark infringement claims against a massive range of pi-related designs on print-on-demand websites including Zazzle and Cafepress.
Surprisingly, Zazzle accepted his claim and removed thousands of clothing products using this design, emailing designers that their work was infringing Pi Productions’ intellectual property – even designs not using a full stop.
At first Zazzle’s Content Review team responded to their very angry designers and store keepers with generic emails, suggesting they file counter notices if they felt aggrieved.
But now Zazzle’s latest response is that they are acting to protect Paul Ingrisano’s “intellectual property” from “confusingly similar” designs as under the Lanham Act 1946 – including designs which do not even contain the pi symbol, but just the word “pi” in their design name.
I don’t expect this particular outrage to last but as with absurd patents the real outrage is that this does accurately represent the law as it exists today.