Category: Current Affairs

Not From The Onion

by  Alex Tabarrok in

Here’s an astounding illustration of my argument that “American students are not studying the fields with the greatest economic potential.”

The Nation: A few years ago, Joe Therrien, a graduate of the NYC Teaching Fellows program, was working as a full-time drama teacher at a public elementary school in New York City. Frustrated by huge class sizes, sparse resources and a disorganized bureaucracy, he set off to the University of Connecticut to get an MFA in his passion—puppetry. Three years and $35,000 in student loans later, he emerged with degree in hand, and because puppeteers aren’t exactly in high demand…he’s working at his old school as a full-time “substitute”…[earning less than he did before].

…Like a lot of the young protesters who have flocked to Occupy Wall Street, Joe had thought that hard work and education would bring, if not class mobility, at least a measure of security…But the past decade of stagnant wages for the 99 percent and million-dollar bonuses for the 1 percent has awakened the kids of the middle class to a national nightmare: the dream that coaxed their parents to meet the demands of work, school, mortgage payments and tuition bills is shattered.

What astounds me is not that someone could amass $35,000 in student loans pursuing a dream of puppetry, everyone has their dreams and I do not fault Joe for his. What astounds me is that Richard Kim, the executive editor of The Nation and the author of this article, thinks that the failure of a puppeteer to find a job he loves is a good way to illustrate the “national nightmare” of the job market. Even in a wealthy society it’s a privilege to have the kind of job that Kim thinks are the entitlement of the middle class. And, as Tyler says, we are not as wealthy as we thought we were.

In considering the plight of the puppeteer lets also remember that millions of the unemployed would be grateful to have a job that they don’t like.

By the way, should you be so inclined, Therrien has a Kickstarter project where you can voluntarily donate to create “a nationwide flowering of spectacle puppet theater joyously spreading a new public consciousness!” You may also wish to know that according to Mike Riggs at Reason:

The pro-puppet American Recovery and Reinvestment Act doled out $50,000 to the Center for Puppetry Arts in Atlanta; $25,000 to the Sandglass Center for Puppetry and Theater Research in Vermont; and $25,000 to the Spiral Q Puppet Theater in Philadelphia.

Update on the Austro-Chinese business cycle

by  Tyler Cowen in

Someone is sitting on a mound of $3.2 trillion in foreign exchange reserves, and yet this is possible:

With the same force that powered the most ambitious rail programme in history, China has slammed the brakes on its investment in high-speed trains.

The sudden halt has led to system-wide whiplash, leaving workers without pay, battalions of heavy machinery sitting idle and setting back plans for bullet trains that were meant to carry the nation’s future.

…Spending had already been slowing after a surge from stimulus money in 2009 but the decline since the Wenzhou crash in July has been precipitous. In year-to-date terms, investment in railways and transport had been up 7 per cent in the first half of 2011. By the end of September it was down 19 per cent, according to official data.

There is little chance of a return to the construction frenzy of the past five years but the government appears to be slowly setting the high-speed rail plans back in motion. Restarting the investment would provide an immediate boost to the weakening economy. Longer term, it is also expected to encourage a big structural shift, opening up China’s interior to make domestic growth more self-sustaining.

But this is less encouraging:

Passenger numbers have fallen sharply since the Wenzhou crash. About 151 million trips were made on Chinese trains in September, almost 30 million fewer than in July, according to ministry data.

The Snuggle Theory of Horror

by  Alex Tabarrok in

From a survey on the psychology of scary stories:

With regard to age, there’s a suggestion that enjoyment rises through childhood, peaks in adolescence and then gradually fades with age. Related to this is the ‘snuggle theory’ – the idea that viewing horror films may be a rite of passage for young people, providing them with an opportunity to fulfil their traditional gender roles. A paper from the late 1980s by Dolf Zillmann, Norbert Mundorf and others found that male undergrads paired with a female partner (unbeknown to them, a research assistant), enjoyed a 14-minute clip from Friday the 13th Part III almost twice as much if she showed distress during the film. Female undergrads, by contrast, said they enjoyed the film more if their male companion appeared calm and unmoved. Moreover, men who were initially considered unattractive were later judged more appealing if they displayed courage during the film viewing. ‘Scary movies and monsters are just the ticket for girls to scream and hold on to a date for dear life and for the date (male or female) to be there to reassure, protect, defend and, if need be, destroy the monster,’ says Fischoff. ‘Both are playing gender roles prescribed by a culture.’

Happy Halloween.

The update from Pompeii

by  Tyler Cowen in

Almost every word of  this report reflects some of Italy’s broader problems:

A labour union on Thursday reported that a chunk of the wall from Domus of Diomede building on Via Consolare collapsed a day after European Commissioner Johannes Hahn announced that the European Union would give up to 105 million euros to protect and restore the fragile site UNESCO World Heritage site that was buried by volcanic ash around two thousand years ago.

The funds are part of one billion euros earmarked for cultural heritage projects, with particular emphasis on southern Italy, according to Italian minister for regional affairs Raffaele Fitto.

An similar collapse last week prompted Italian culture minister Giancarlo Galan to promise that he would make Pompeii his “the utmost priorty.”

He made almost identical remarks in March shortly after the state of Pompeii led to his predecessor’s resignation.

Only thirty percent of the buildings at the site are considered to be in good condition.

Addendum: Here is a report which doubts whether in fact another wall has collapsed.

Roger Kerr passes away

by  Tyler Cowen in

Here is the obituary, and here, this is very sad news for me.  Roger had a huge influence on my life.  I spent a good deal of time working for him and with him at the New Zealand Business Roundtable in Wellington and he was always up for a discussion and an argument.  He seemed to have boundless energy, and he played a key role in making New Zealand a sounder and better country.  A lot of my interest in economic policy comes from my time spent with Roger, most of all my interest in the institutional design of central banks but not just.  Roger expected you to be ready to discuss anything, at the drop of a hat, and I consider my time with Roger a major influence on my blogging.  He exposed me to the New Zealand classical liberal tradition and from that I saw a lot of deficiencies (and some strengths) of the North American traditions.  Roger will be missed but we all know that his influence extended far.

The 99% 98%

by  Alex Tabarrok in

The Occupy Wall Street volunteer kitchen staff launched a “counter” revolution yesterday — because they’re angry about working 18-hour days to provide food for “professional homeless” people and ex-cons masquerading as protesters.

For three days beginning tomorrow, the cooks will serve only brown rice and other spartan grub instead of the usual menu of organic chicken and vegetables, spaghetti bolognese, and roasted beet and sheep’s-milk-cheese salad.

They will also provide directions to local soup kitchens for the vagrants, criminals and other freeloaders who have been descending on Zuccotti Park in increasing numbers every day.

This is from the NYPost so take it with a grain of salt but still there is a lesson to be learned beyond the chortle.

Left out of some headlines

by  Tyler Cowen in

Nonetheless the FT reports:

“Here’s where you may be a little bit surprised, but this is where we decided to end last night: the specific elements of the deal, that is to say the structure of the new claim on Greece, remains to be negotiated,” said Charles Dallara, managing director of the Institute of International Finance, the consortium of banks that negotiated on behalf of Greek bondholders.

From PaddyPower, not the same as the InTrade odds

by  Tyler Cowen in

From an email:

As EU leaders gather in Brussels to formulate a financial package to avert monetary meltdown, the latest odds from bookmaker Paddy Power show they face a mammoth task to convince the cynical markets.

Odds for Greece to leave the Euro first and a complete Eurozone break-up have shortened as analysts nervously wait for any detail which will secure the financial fate of the monetary union.

Greece is 2/7 to be first to leave the economic union, with Portugal next at 6/1. Germany is at 16/1 – perhaps an indication that the major player in the currency may fancy leaving the worst countries to their own devices. It is 6/5 at the Eurozone will be non existent by 2015.

Paddy Power said: “The ministers have a lot of work to do here. Concerns continue to grow about the stability of Spain and Italy and Greek financial stability still isn’t a foregone conclusion. If the great and the good in Brussels don’t come up with a detailed plan soon, it’s going to get a whole lot worse and that is what we are seeing in our betting.”

First to leave the Euro
2/7       Greece
6/1       Portugal
8/1       Ireland
12/1      Italy
12/1     Spain
16/1     Germany
16/1     Cyprus

Eurozone Break Up
6/5       Eurozone to break up by 2015
4/7       Eurozone to break up by 2020

Caveat emptor!

Somebody’s culture, I am not sure whose

by  Tyler Cowen in

Last week, restaurant in Edinburgh, Scotland, held a competition to eat the extra-hot Kismot Killer curry. Some of the competitive eaters were left writhing on the floor in agony, vomiting and fainting.

According to reports, two British Red Cross workers overseeing the event at the Kismot Indian restaurant in Edinburgh but became overwhelmed by the number of casualties and ambulances were called. Half of the 20 people who took part in the challenge dropped out after witnessing the first diners vomiting, collapsing, sweating and panting.

It turns out that eating a few pounds of the stuff probably can kill you; hat tip goes to Steve Silberman.

How to exit the eurozone, or Lord Wolfson, how about fifty quid for a blog post?

by  Tyler Cowen in

There is no easy way out of the eurozone, as Tim Harford explains with eloquence and good humor.  But here is my best guess at Wolfson’s query:

1. Issue a surprise announcement that all euro deposits in Ruritania will be converted into pesos (or whatever) at a new and lower yet defensible rate.  If I try to withdraw my ten euros from my bank, I receive an IOU for ten pesos which is worth say six euros.  Over time the government will replace these IOUs with a new paper currency.

2. Let physical currency euros leave the country, and stress they will be honored, in any case they are not easy to confiscate or convert.  And a country may need them as a partial money during the transition.  Not trying to confiscate them will mean that a lot of the euro currency stays.  There will be a dual currency regime for some time to come, but the medium of account will become pesos not euros.

3. If you borrowed money denominated in euros, from a Swiss or German bank, that is between you and them.  Obviously a lot of borrowers will be in partial or total default, given the whack to their bank accounts.  Let the northern nations bail out their banks, they won’t send tanks to extract the funds from good ‘ol Ruritania.  Who knows, the rest of the eurozone might be prompted to set up a sensible bank resolution mechanism — working through the ECB of course — though don’t count on it.

4. The assets of Ruritania banks, namely loans to Ruritania citizens, will be redenominated to pesos.  Labor and rental contracts will be redenominated too.

5. Nationalize parts of the banking system if need be, so much the better if you can pass on this one.  If the bank is essentially empty, that is a deflationary shock.  Have the government take over the bank and fill it with new printed money to restore deposits and counter the deflationary shock.  If the country cannot trust its nationalizers, they should just print up more pesos and nail them to the bank balance sheets, risking the resulting corruption and drain of funds.

Are we on track so far?  The consumption of imports will fall I believe.

6. What about default?  If your country is running a primary surplus (Italy yes, Greece no), partially default on your debt but make strict promises to resume payments ASAP.  Capture some wealth from the foreign banks and start the game all over again.  Without a significant primary surplus, the (temporary?) cessation of foreign borrowing would mean that the country has to cut government spending further.  Make a political judgment here but consider not defaulting; default may be unavoidable for Greece in particular but you can’t blame my plan for how deep in the hole they are.

Let’s sum up which problems have been addressed and which not.  The domestic banking system is saved, at least provided the new conversion rate is credible enough that no one expects a repeat of the depreciation.  It’s key to make that first announcement a real surprise, good luck!  A negative wealth shock will come anyway and my plan has accelerated the arrival of that shock; the best one can do is to combine it with monetary expansion and the positive export shock from devaluation.  To fix the external banks, the wealthier countries will need to exercise and perhaps improve their LOLR powers, but that is the case under any plan, not just this one.

Admittedly this plan makes the wealth loss in Ruritania quite transparent, which may be politically unpopular, but that transparency eases the economics of the transition.

Voila!  Rinse and repeat as necessary.  A lot of this would be eased by high inflation from the eurozone itself but a) that would involve collateral costs on the healthier economies, and b) in any case it doesn’t look like it will happen.  I’m sticking with what a small country can do on its own.

No need to write in the comments section that this is “illegal.”  Breaking the three percent deficit rule, as France and Germany did, was illegal too.  Ruritania will not be hauled before a court of law and I also predict Ruritania will not be ejected from EU per se.  Maybe their agricultural subsidies will be cut, let them eat floating exchange rates I say.

Report from the front line

by  Tyler Cowen in

Chancellor Angela Merkel said on Saturday that the European Central Bank has just one mission — to ensure monetary stability.

Merkel said in a speech to her Christian Democrats in Braunschweig on Saturday that treaties prevent the ECB from taking on any other tasks, such as those such as the U.S. Federal Reserve have.

That could be a clever Straussian feint and bluff, but with what probability?  I don’t think so, I think it is for real.

Buy a House, Get a Visitor Visa?

by  Alex Tabarrok in

I have been promoting a “buy a house, get a visa” program for several years, so I was initially pleased to see a new bill on this theme from Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah).

…the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out.

On closer inspection, however, the bill is very weak. Most importantly, the visa would simply allow the buyer to live in his or her house but would not allow them to work in the United States. Pathetic.

I also liked Matt Yglesias‘s spin on this:

The larger issue, however, is that the Schumer/Lee proposal would deny the new immigrants the right to work in the United States. As with other restrictions on high-skill immigration, this is essentially a form of class warfare against less educated Americans. We should be clamoring to increase the supply of foreign-born doctors, lawyers, engineers, and other highly educated occupations as a way of increasing the real wages of America’s factory workers, janitors, waitresses, carpenters, and retail clerks.

Addendum: Canadians are not impressed with the offer.