Category: Current Affairs
China projection of the day
From Ted Fishman, the demographic turning point is coming sooner than I had thought:
In 2015, China’s working population below the age of 65 will begin to shrink. Meanwhile, the number of people over 65 will be rising to 300 million by 2050, a threefold increase.
How would Beijing respond to yuan revaluation?
Most of all the Chinese leadership is worried about maintaining jobs (sound familiar?). And so:
It will lower real interest rates and force credit expansion
This of course will have the effect of unwinding the impact of the renminbi appreciation. As some Chinese manufacturers (in the tradable goods sector) lose competitiveness because of the rising renminbi, others (in the capital intensive sector) will regain it because of even lower financing costs. Jobs lost in one sector will be balanced with jobs gained in the other.
But there will be a hidden cost to this strategy – perhaps a huge one. The revaluing renminbi will shift income from exporters to households, as it should, but cheaper financing costs will shift income from households (who provide most of the country’s net savings) to the large companies that have access to bank credit. So China won’t really rebalance, because this requires a real and permanent increase in the household share of GDP. Instead what will happen is that it will reduce Chinese overdependence on exports and increase China’s even greater overdependence on investment.
This will not benefit China. It will fuel even more real estate, manufacturing and infrastructure overcapacity without having rebalanced consumption. Expect, for example, even more ships, steel, and chemicals in a world that really does not want any more.
That's from Michael Pettis, and here is more.
Lionel W. McKenzie has passed away at 91
Here is his Wikipedia page. McKenzie was one of the most important figures in proving the existence of a competitive general equilibrium and also in developing the turnpike theorem. Here is a short bio. He was a formative factor in founding and shaping the graduate economics program at the University of Rochester, where he taught for decades. He was especially famous in Japan for having taught and guided so many Japanese doctoral students. His paper "Demand theory without a utility index" remains a classic, as it helped show how much of standard economics was independent of particular assumptions about utility. He was an early influence on the idea of computing economic equilibria. He also had respected papers in trade theory; here is McKenzie on scholar.google.com.
Markets in everything
The 33 trapped Chilean miners have moved to stop any individual from profiting at the expense of the group, drawing up a legal contract to share the proceeds from the story of their ordeal.
The group have already rejected requests for interviews and have instead made plans to jointly write a book about the days spent trapped below the Atacama Desert following the mine collapse on August 5.
We'll see if that holds up. The full story is here and for the pointer I thank Eric Hartley. Is it unethical to pay an individual miner for the story of the group?
Peter A. Diamond, Dale T. Mortensen, Christopher A. Pissarides
They are the new winners of the Nobel Prize. I'll be adding updated information for the next hour or two, so if you use RSS please visit the blog's home site for the latest!
This is a prize for search theory and labor markets and job matching, all very important ideas today, especially in the United States. It is a well deserved prize and all authors have produced very well-cited and very influential papers. It is a theory prize, although Diamond in particular also has some empirical papers. I'll write a separate post for each economist.
Maurice Allais
French physicist and economic Nobel Laureate Maurice Allais has died at age 99. Allais is best known among American economists for the Allais paradox but Allais was a polymath with contributions (and JSTOR here) in a huge number of areas many of which were often overlooked because his work was not translated into english (an unfortunate fact which is still true today).
One thing that few people know about Allais was that he was a big proponent of the gold standard and Austrian business cycle theory, even citing Mises and Rothbard in some of his work. See in particular his paper in English, The Credit Mechanism and its Implications (1987) in Feiwel (ed), Arrow and the Foundations of the Theory of Economic Policy. See also here for further citations in french.
As might be expected from a polymath, Allais's views are difficult to pigeonhole. He was a strong proponent of private property and the market economy, for example, but to create the consensus necessary to produce such a society he also favored immigration restrictions and protectionism.
Amazingly, Allais also conducted ground breaking experiments on pendulums which earned him the 1959 Galabert Prize of the French Astronautical Society and which may have revealed an anomaly in general relativity that physicists refer to as the Allais effect.
The Charter 08 document
It helped Liu Xiaobo win a Nobel Peace Prize. Here is one good paragraph of many:
Protection of Private Property. We should establish and protect the right to private property and promote an economic system of free and fair markets. We should do away with government monopolies in commerce and industry and guarantee the freedom to start new enterprises. We should establish a Committee on State-Owned Property, reporting to the national legislature, that will monitor the transfer of state-owned enterprises to private ownership in a fair, competitive, and orderly manner. We should institute a land reform that promotes private ownership of land, guarantees the right to buy and sell land, and allows the true value of private property to be adequately reflected in the market.
Hat tip goes to Matt Yglesias.
CA Organ Donor Law
California has a new law creating a live donor registry for kidney transplants and requiring California drivers to say yay or nay on whether they want to be organ donors when they renew their drivers' licenses. The law was passed with the prodding of Steve Jobs who last year had a liver transplant.
The live donor registry is very good. The required declaration is mixed but I hope it works. I see it as follows. The benefit is that if a potential donor has said yes to organ donation then next of kin almost always agree to their wishes so if more people positively affirm that is good. The cost, however, is that now "no" really means "no" and next of kin will presumably agree to that as well. Previously, next of kin might have said yes to non-signatories. Let's use some back of the envelope figures:
100 potential donors
20 signed organ donor cards
80 do not sign but, among these, half the families say yes so 40.
Total: 60 donors.
So with declaration you need more than 60 to agree to be organ donors, i.e. a huge increase in those saying yes. It could happen if what people say on surveys about supporting organ donation is true but I would have been much happier with even a small incentive to sign. How about a free iPhone for signatories? Or at least some more minutes!
See here for more on incentives and organ donation.
Addendum: Nudge blog has some helpful comment–the law appears to be closer to mandated ask than mandated choice.
Mario Vargas Llosa wins Nobel Prize
That's for literature, sadly he never had the chance to win a prize for economics, as his political career as a Peruvian classical liberal was cut short by electoral defeat. He has many fine books but I have two particular favorites: The War of the End of the World (serious and epic, concerning a millenarian revolt in Brazil) and Aunt Julia and the Scriptwriter (a fun story and spoof of telenovela culture). Conversation in the Cathedral is sometimes considered a classic but I find it unreadable. I suspect his early The Green House will resonate more with Latin Americans. His last major novel, The Bad Girl, was entertaining but not entirely satisfying and it reminded me a bit too much of an older man writing about sex. The Feast of the Goat is a very good study of political power. Here are previous MR mentions of Mario Vargas Llosa.
Here is Wikipedia on Vargas Llosa. Alex has done a good bit of work with Alvaro Vargas Llosa, son of Mario and a prominent writer on classical liberal themes, and perhaps he will relate some of that to us.
Economics Nobel odds at iPredict
iPredict is running contracts on who will win this year's Nobel Prize in Economics. As I write Oliver Hart heads the field with a 25% chance, Robert Schiller, Richard Thaler, Martin Weitzman come next, all with an 18% chance of winning.
Also listed are William Nordhaus, Jean Tirole, Angus Deaton, Richard Posner, Gene Grossman, Ernst Fehr, Gordon Tullock, Avinash Dixit, Sam Peltzman, Eugene Fama and Robert Barro.
It does seem to be a market based on real money payments, though I am not sure how much liquidity is there. The direct link to the contracts is here and right now Thaler is leading. The link cited above is here and for the pointer I thank Eric Crampton.
Should they have let the guy’s house burn down?
David Henderson blogs some of the basic information (Cohn at TNR comments here). Here is the upshot:
He refers to a story about a man who failed to pay an annual fee for fire protection and then, when his house caught on fire and he called the fire department, the fire department refused to show up.
They wouldn't even let him pay up ex post. David notes that this is a government-run fire department and thus the story is not much of a moral reductio on the market. Arguably a private company would behave the same way, sometimes, but it 's odd to claim that government failure reminds you market failure is possible and so let's damn the market. By the way, markets do pretty well at setting up schemes with a penalty for late payment; that's how my mortgage works.
I would make a broader point. Any social system must, at some stage of interactions, impose some morally unacceptable penalties. If you are very hungry, and you shoplift food, they still might prosecute you. If you don't pay your taxes, and resist wage garnishes, they might put you in jail. If you resist arrest, they might, at some point in the chain of events, shoot you while trying to escape. Somewhere along the line there is a doctor who can treat your rare disease except he doesn't feel like working so much, and so he lets you die or suffer; you can find both private and public sector examples here.
Social systems proceed by (usually) covering up the brutalities upon which they are based. The doctor doesn't let you get to his door and then turn you away, rather his home address is hard to find. The government handcuffs you so they don't have to shoot you trying to escape. And so on.
To borrow language from Thomas Schelling, social systems involve costs in terms of both "known" and "statistical" lives. It's the sum total of costs which is important. It's fine (though controversial) to argue that a "known" life should be more important than a "statistical" life, but it's not dispositive to pull out one example of a "known" life and draw a significant conclusion from that anecdote. That's what we teach students not to do in first year principles, sometimes citing Bastiat, the seen and the unseen, and so on.
I don't favor the policies of this fire department, but simply pointing out the vividness one of these social brutalities doesn't much influence me about the broader principles at stake.
Ten memorable Nigerian books
Natalie has been staying with us, so I have been searching for interesting reads on Nigeria; here is an account of ten important novels about the country.
I am told that on Lagos island rents can run $60-70k a year and have to be paid two years in advance. Here is a short Rem Koolhaas video on Lagos. Lagos may soon be the third largest city in the world, and yet other than informal buses the city has virtually no mass transit. The traffic jams are legendary. A journey to nearby Benin should only take three hours but now it can last days.
Some say that Nigeria is the largest user of motorcycles in the world; many hospitals in the country have a ward named after the motorcycles. In Lagos, there is a recent partial ban on their use.
Here is a good article on the maturation of Nollywood. Here is a good, regular source of information about Nigeria, namely 234Next.com.
Here is the renowned BBC Lagos special.
Not Leaving Las Vegas
Unemployment in Nevada is now 14.4 percent, the highest in the nation and a stark contrast to the 3.8 percent unemployment rate here just 10 years ago; in Las Vegas, it is 14.7 percent.
August was the 44th consecutive month in which Nevada led the nation in housing foreclosures.
The article is here and it details other grim aspects of the city's economy. This is a simple yet effective example of the current non-separability of aggregate demand and structural problems. Demand in Las Vegas is ailing and businesses are complaining of low sales. Yet this is a sectoral shift as well, resulting from especially bad local housing problems, lower travel demand from outsiders, and a growing desire for investment safety rather than gambling risk. Las Vegas needs for the United States to have higher real asset values, not just higher nominal aggregate demand.
It is a mistake to require that the sectoral aspect of the explanation postulate an offsetting boom in some other city or some other non-travel, non-gambling sector; that is one sectoral theory but not the one which applies today.
One reason why fiscal reform is difficult
Joblessness and the accompanying loss of health benefits drove an additional 3.7 million people into the Medicaid program last year, the largest single-year increase since the early days of the government insurance plan, according to an annual survey by the Kaiser Family Foundation.
Enrollment in the program, which provides comprehensive coverage to the low-income uninsured, grew by 8.2 percent from December 2008 to December 2009, the second-largest rate of increase in the 10 years that Kaiser has conducted the survey. There were 48.5 million people on Medicaid at the end of 2009, or about one of every six Americans.
The article is here. The dilemma is simple: variations in Medicaid coverage account for a lot of the variation in the health of state government finances. Yet if states cut back on Medicaid in some manner, there will be more people on the more expensive subsidized exchanges, come the full onset of the Obama health plan.
What is the incidence of “game”?
You know, "game," the use of signaling tactics to persuade, nudge, or trick a woman into treating you like a higher status male than otherwise would be the case.
Let's assume that game advocates are correct that, at current margins, "game" can yield the individual gamer higher returns without having to pay an offsetting price in terms of greater expense, less pleasant conquests, etc. and thus game is a net gain for the individual practitioner. Maybe not, but let's say.
Let's also say that any particular game tactic won't work on all women, even if you think that some form of game will succeed, if you know enough about the woman or have good enough intuition. In other words, you have to pick a strategy and aim at a sector but can't target all types of women at the same time. I don't think it's unfair to ask for that assumption back in return.
Why am I suddenly thinking about the tragedy of the commons and the Harberger corporate taxation model?
If there is no price mechanism to choke off the returns from game, the implied result is the crowding of men around each group of game-ready women. Over time, the average returns of game are competed down to…by the typical equalization assumption…the returns of non-game.
Which men end up better off? Ask: would you rather "buy" in a market where there is an equilibrating price, or in a market where there is no price but lots of crowding? Men with a relatively high tolerance of queuing should prefer the market without a price, namely the gaming scene. In the markets with prices, you can be pretty sure you get what you most prefer, that is by paying the price. (I'm not talking about prostitution, I'm talking about broader mating markets where you have to be something or give something to get something.) Non-gamers therefore dislike queuing, know what they want, and recognize the trade-offs in succeeding.
Oddly, gamers themselves might be better off if game "worked" by spending a lot of money buying women drinks (this seems not to be the case). It would then return to being a market with an equilibrating price, which is maybe where it is headed anyway.
If circumstances exogenously shift an extra man into "game," who loses? The other men playing game, who now have higher queuing costs. Who gains? The non-gaming men who pursue the women who have been abandoned by the new, marginal gamers.
There are comparable propositions about free roads and toll roads. Let's say you have a pay road and a free road, covering the same route. Usually the move toward a social optimum involves a tax on the free road. In other words, social norms against game benefit the practitioners of game by limiting crowding. In contrast, spreading publicity about the potency of game benefits the non-gaming men.
If gamers are disillusioned romantics, the women who are courted by sensitive romantics also lose when there is a shift of male effort into game. Those women now find there are fewer bids of truly romantic interest. Consistently romantic men, who do not grow disillusioned and shift into game, will gain through superior selection and more favorable terms of trade.