Category: Data Source
The investment slowdown, by the way after the short run demand is endogenous…
…firms in sectors that rely more on external funds, such as pharmaceuticals, have seen a larger fall in investment than other firms since the crisis. This finding is consistent with the view that a weak financial system and weak firm balance sheets have constrained investment.
That is Timothy Taylor, summarizing an IMF study, is an excellent post on the investment slowdown. Here is more from his summary:
- For these [advanced] economies, private investment has declined by an average of 25 percent since the crisis compared with precrisis forecasts, and there has been little recovery. In contrast, private investment in emerging market and developing economies has gradually slowed in recent years, following a boom in the early to mid-2000s.
- The investment slump in the advanced economies has been broad based. Though the contraction has been sharpest in the private residential (housing) sector, nonresidential (business) investment—which is a much larger share of total investment—accounts for the bulk (more than two-thirds) of the slump. …
Is happiness inequality up or down?
Steven Quartz writes:
…our current Gilded Age has been greeted with relative complacency. Despite soaring inequality, worsened by the Great Recession, and recent grumbling about the 1 percent, Americans remain fairly happy. All of the wage gains since the downturn ended in 2009 have essentially gone to the top 1 percent, yet the proportion of Americans who say they are “thriving” has actually increased. So-called happiness inequality — the proportion of Americans who are either especially miserable or especially joyful — hit a 40-year low in 2010 by some measures. Men have historically been less happy than women, but that gap has disappeared. Whites have historically been happier than nonwhites, but that gap has narrowed, too.
In fact, American happiness has not only stayed steady, but converged, since wages began stagnating in the mid-1970s. This is puzzling. It does not conform with economic theories that compare happiness to envy, and emphasize the impact of relative income for happiness — how we compare with the Joneses.
Here is part of the answer, consistent with what I argued in my book What Price Fame?:
…social status, which was once hierarchical and zero-sum, has become more fragmented, pluralistic and subjective. The relationship between relative income and relative status, which used to be straightforward, has gotten much more complex.
…A new generation of ethnographers has discovered an explosion of consumer lifestyles and product diversification in recent decades. From evangelical Christian Harley-Davidson owners, who huddle together around a motorcycle’s radio listening to a service on Sunday mornings, to lifestyles organized around musical tastes, from the solidarity of punk rockers to yoga gatherings, from meditation retreats to book clubs, we use products to create and experience community. These communities often represent a consumer micro-culture, a “brand community,” or tribe, with its own values and norms about status.
The article is very interesting throughout, hat tip goes to Claire Morgan.
Note that the closing bit of this piece is…this: “Money may not buy happiness in the long run, but consumer choice has gone a long way in keeping most Americans reasonably content, even if they shouldn’t be.”
How much is that birdie in my backyard?
Human-wildlife interactions in urban areas, both positive and negative, often involve people and birds. We assess the economic value placed on interactions with common native songbirds in two different urban areas (Berlin, Germany and Seattle, Washington, USA) by combining a revealed preference (recalled expenditures on bird feed) and a stated preference approach (determining willingness to pay for conservation or reduction of birds). Residents in both cities purchase bird food, engage in a range of bird-supporting activities and are generally willing to pay a small amount for native songbird conservation. Demographic, cultural and socio-economic factors, as well as specific attitudes towards birds and general attitudes about conservation were found to influence these decisions. This study presents the first attempt at estimating the economic value of enjoying common native urban songbirds and estimates the lower bound to be about 120 million USD/year in Seattle and 70 million USD/year in Berlin.
There is some media coverage here, and for the pointer I thank Charles Klingman.
China (Korea) fact of the day
Producer prices deflated for a 37th consecutive month in March, falling 4.6 per cent, versus a 4.8 per cent fall in February.
That is the longest period of factory gate deflation in China on record.
“The current bout of goods deflation in China and South Korea is the longest in postwar East Asia outside of Japan in the 1990s,” said Rodney Jones, Beijing-based principal of Wigram Capital.
Producer prices in South Korea have also fallen for 39 consecutive months.
The producer price index, often regarded as a leading indicator for consumer prices, has been mired in deflation thanks to sliding domestic demand and chronic overcapacity in many sectors.
That is from McGee and Anderlini at the FT.
By the way, here is the FT citing Deutsche Bank:
Bubble watchers point out median earnings multiples for Chinese technology stocks are twice US peer valuations at their dot.com peak. More worrying perhaps is a health-goods-from-deer-antlers producer on 70 times, the seamless underwear manufacturer on 90 times or those school uniform and ketchup makers on 330 times!
Last week there were 1.67 million new brokerage accounts.
The effect of reusable shopping bags
Karkarmar: It was clear that shoppers who brought their own bags were more likely to replace nonorganic versions of goods like milk with organic versions. So one green action led to another. But those same people were also more likely to buy foods like ice cream, chips, candy bars, and cookies. They weren’t replacing other items with junk food, as they did with organic food. They were just adding it to their carts.
The full story is here, via Peter Metrinko.
Jobs young people are willing to consider for the future
Mayor of a city or town – 9.3% are willing to consider
Member of Congress – 8.8%
President – 6.4%
That is from Jennifer L. Lawless and Richard L. Fox, Running From Office: Why Young Americans Are Turned Off to Politics, a fascinating and also readable book.
Does education in economics make politicians corrupt?
Maybe so, I haven’t yet had a chance to look at the paper, so I can’t lay out for you how the measurements work, or how many data points they have, but the abstract sounds interesting, albeit in a possibly speculative way:
The present article analyzes the differences between economists and non-economists with respect to observed corruption behavior used as a proxy for selfishness. For this purpose, I analyzed real world data of relating to the 109th–111th US Congress between 2005 and 2009, including 695 representatives and senators. I show that those who hold a degree in economics are significantly more prone to corruption than ‘non-economists’. These findings hence support the widespread, but controversial hypothesis in the ‘economist vs. non-economist literature’ that economists lack what Frey and Meier (2004) call ‘social behavior’. Moreover, by using real world data, these findings overcome the lack of external validity, which impact on the (low cost) experiments and surveys to date.
That is from René Ruske in Kyklos. Hat tip goes to Kevin Lewis.
Can any of you find an ungated version?
Claims about tall Dutch people
The Guardian reports:
Researchers led by Gert Stulp, a specialist in population health at the London School of Hygiene and Tropical Medicine, combed a Dutch database for clues.
Called LifeLines, the record contains exhaustive detail about the lives and health of more than 94,500 people who lived in the northern the Netherlands from 1935 to 1967. In this three-decade snapshot, the people who had the most children were tall men, and women of average height, the team found.
For example, the most fertile men were seven centimetres above the average height. Statistically, they had 0.24 more children on average than the least fertile men, who were about 14 cm below the average height.
Compared to counterparts in other countries where they often tended to have fewer children, taller women also reproduced more in the Netherlands. Many postponed having children until after their studies, but once they forged a successful relationship, often had a large family.
…Stulp pointed to figures showing that, in the United States, shorter women and men of average height have the most reproductive success.
The short piece is interesting throughout, and for the pointer I thank John B. Chilton. And elsewhere on the height research front, the Indian height advantage, relative to Africa, exists only for firstborn sons.
Are S&P 500 firms now 5/6 “dark matter” or intangibles?
Justin Fox started it, and Robin Hanson has a good restatement of the puzzle:
The S&P 500 are five hundred big public firms listed on US exchanges. Imagine that you wanted to create a new firm to compete with one of these big established firms. So you wanted to duplicate that firm’s products, employees, buildings, machines, land, trucks, etc. You’d hire away some key employees and copy their business process, at least as much as you could see and were legally allowed to copy.
Forty years ago the cost to copy such a firm was about 5/6 of the total stock price of that firm. So 1/6 of that stock price represented the value of things you couldn’t easily copy, like patents, customer goodwill, employee goodwill, regulator favoritism, and hard to see features of company methods and culture. Today it costs only 1/6 of the stock price to copy all a firm’s visible items and features that you can legally copy. So today the other 5/6 of the stock price represents the value of all those things you can’t copy.
Check out his list of hypotheses. Scott Sumner reports:
Here are three reasons that others have pointed to:
1. The growing importance of rents in residential real estate.
2. The vast upsurge in the share of corporate assets that are “intangible.”
3. The huge growth in the complexity of regulation, which favors large firms.
It’s easy enough to see how this discrepancy may have evolved for the tech sector, but for the Starbucks sector of the economy I don’t quite get it. A big boost in monopoly power can create a larger measured role for accounting intangibles, but Starbucks has plenty of competition, just ask Alex. Our biggest monopoly problems are schools and hospitals, which do not play a significant role in the S&P 500.
Another hypothesis — not cited by Sumner or Hanson — is that the difference between book and market value of firms is diverging over time. That increasing residual gets classified as an intangible, but we are underestimating the value of traditional physical capital, and by more as time passes.
Cowen’s second law (“There is a literature on everything”) now enters, and leads us to Beaver and Ryan (pdf), who study biases in book to market value. Accounting conservatism, historical cost, expected positive value projects, and inflation all can contribute to a widening gap between book and market value. They also suggest (published 2000) that overestimations of the return to capital have bearish implications for future returns. It’s an interesting question when the measured and actual means for returns have to catch up with each other, what predictions this eventual catch-up implies, and whether those predictions have come true. How much of the growing gap is a “bias component” vs. a “lag component”? Heady stuff, the follow-up literature is here.
Perhaps most generally, there is Hulten and Hao (pdf):
We find that conventional book value alone explains only 31 percent of the market capitalization of these firms in 2006, and that this increases to 75 percent when our estimates of intangible capital are included.
So some of it really is intangibles, but a big part of the change still may be an accounting residual. Their paper has excellent examples and numbers, but note they focus on R&D intensive corporations, not all corporations, so their results address less of the entire problem than a quick glance might indicate. By the way, all this means the American economy (and others too?) has less leverage than the published numbers might otherwise indicate.
Here is a 552 pp. NBER book on all of these issues, I have not read it but it is on its way in the mail. Try also this Robert E. Hall piece (pdf), he notes a “capital catastrophe” occurred in the mid-1970s, furthermore he considers what rates of capital accumulation might be consistent with a high value for intangible assets. That piece of the puzzle has to fit together too. This excellent Baruch Lev paper (pdf) considers some of the accounting issues, and also how mismeasured intangible assets often end up having their value captured by insiders; that is a kind of rent-seeking explanation. See also his book Intangibles. Don’t forget the papers of Erik Brynjolfsson on intangibles in the tech world, if I recall correctly he shows that the cross-sectoral predictions line up more or less the way you would expect. Here is a splat of further references from scholar.google.com.
I would sum it up this way: measuring intangible values properly shows much of this change in the composition of American corporate assets has been real. But a significant gap remains, and accounting conventions, based on an increasing gap between book and market value, are a primary contender for explaining what is going on. In any case, there remain many underexplored angles to this puzzle.
Addendum: I wish to thank @pmarca for a useful Twitter conversation related to this topic.
We ignore robot alarms, do we have to ignore robot alarms?
How many robot alarms are there anyway?
Every day, the bedside cardiac monitors threw off some 187 audible alerts. No, not 187 audible alerts for all the beds in the five ICUs; 187 alerts were generated by the monitors in each patient’s room, an average of one alarm buzzing or beeping by the bedside every eight minutes. Every day, there were about 15,000 alarms across all the ICU beds. For the entire month, there were 381,560 alarms across the five ICUs. Remember, this is from just one of about a half-dozen systems connected to the patients, each tossing off its own alerts and alarms.
And those are just the audible ones.
If you add the inaudible alerts, those that signal with flashing lights and text-based messages, there were 2,507,822 unique alarms in one month in our ICUs, the overwhelming majority of them false.
That is all from Bob Wachter, an interesting piece.
Capital average is over
Peter Orszag reports:
During roughly the same period, the return on invested capital — that is, how much profit is generated for each dollar of investment — also grew more unequal between companies. While the typical return was roughly constant, at about 10 percent, returns became more dispersed over time.
In particular, from 1965 to 1967, only 1 percent of non-financial firms earned returns of 50 percent or more, but from 2005 to 2007, 14 percent did. In other words, 50 years ago, one out of 100 firms earned 50 percent returns. More recently, one out of seven did.
These data suggest three things: First, the typical return to capital hasn’t changed much, which is what you would expect, given that the capital-output ratio excluding land and housing has been stable.
Second, from company to company, that return has become much more unequal, as has productivity. Some of this inequality between companies in returns and productivity tends to spill over into wages. And this is precisely what we’ve seen. It explains more of the rise in overall earnings inequality than does the increased gaps between the pay of higher earners and rank-and-file workers within a given company.
The full article is here.
MOOC sentences to ponder, and the law of demand still holds
“What jumped out for me was the survey that revealed that in some cases as many as 39 percent of our learners are teachers,”
There are two ways to view this. One is that educators are simply talking to each other. The alternative — more likely in my view — is that on-line and face-to-face education are in fact complements, but also that our educators know much less than they sometimes let on. They need MOOCs to learn the material, or more optimistically to improve their presentations of it.
And how is this for the law of demand?:
Across 12 courses, participants who paid for “ID-verified” certificates (with costs ranging from $50 to $250) earned certifications at a higher rate than other participants: 59 percent, on average, compared with 5 percent. Students opting for the ID-verified track appear to have stronger intentions to complete courses, and the monetary stake may add an extra form of motivation.
I’ve long thought the standard meme “Only [small number goes here] percent of starters complete free MOOCS” was a weak argument. This shows you why.
The piece discusses other interesting results as well.
How universal are rates of social mobility across time and societies?
Gary Solon, in a new survey paper, takes issue with the earlier results of Greg Clark, which had suggested social mobility was roughly constant across a wide spectrum of cases. Solon writes:
…the results reported by Clark do not reflect a universal law of social mobility. Quite to the contrary, other studies based on group-average data, even surnames data, frequently produce intergenerational coefficient estimates much smaller than Clark’s.
A second testable prediction of Clark’s hypothesis…is that instrumental variables (IV) estimation of the regression of son’s log earnings on father’s log earnings should yield a coefficient estimate in the 0.7-0.8 range if father’s long earnings are instrumented with grandfather’s log earnings. When Lindahl et al, estimated that regression with their data from Malmo, Sweden, the IV coefficient estimate was 0.15, considerably higher than their ordinary least squares (OLS) estimate of 0.303. They obtained a remarkably similar comparison of IV and OLS estimates when they used years of education instead of log earnings as the status measure. The pattern of IV estimates exceeding OLS estimates is consistent with Clark’s general story about measurement error in particular indicators as proxies for social status. It is equally consistent with all the alternative stories listed in section II for why grandparental status may not be “excludable” from a multigenerational regression. What the results are not consistent with is a universal law of social mobility in which the intergenerational coefficient is always 0.7 or more…
A third testable prediction…is that using an omnibus index that combines multiple indicators of social status should make the intergenerational coefficient estimate “much closer to that of the underlying latent variable.” [But]…The resulting estimate was not “much closer” to the 0.7-0.8 range.
In sum, when Clark’s hypothesis is subjected to empirical tests, it does not fare so well.
Here is an ungated version.
China fact of the day
New brokerage accounts have surged since China’s bull market got running mid-2014. The number of new trading accounts hit a five-year high in early March. But as you can see in the chart above, a lot of those new investors probably aren’t the savviest.
Some 67.6% of households that opened new accounts in the past quarter haven’t graduated from high school, according Orlik’s chart, which comes from a large-scale quarterly national survey of household assets and income conducted by Gan Li of the Southwestern University of Finance and Economics. Only 12% have a college education. Among existing investors surveyed, only 25.5% lack a high school diploma; 40.3% have finished college.
From Gwynn Guilford, there is more here.
Jeff Biddle on migration and air conditioning
Here is the abstract of his piece “Air Conditioning, Migration, and Climate-Related Rent Differentials“:
This paper explores whether the spread of air conditioning in the United States from 1960 to 1990 affected quality of life in warmer areas enough to influence decisions about where to live, or to change North-South wage and rent differentials. Using measures designed to identify climates in which air conditioning would have made the biggest difference, I found little evidence that the flow of elderly migrants to MSAs with such climates increased over the period. Following Roback (1982), I analyzed data on MSA wages, rents, and climates from 1960 to 1990, and find that the implicit price of these hot summer climates did not change significantly from 1960 to 1980, then became significantly negative in 1990. This contrary to what one would expect if air conditioning made hot summers more bearable. I presented evidence that hot summers are an inferior good, which would explain part of the negative movement in the implicit price of a hot summer, and evidence consistent with the hypothesis that the marginal person migrating from colder to hotter MSAs dislikes summer heat more than does the average resident of a hot MSA, which would also exert downward pressure on the implicit price of a hot summer.
The pointer is from Ross Emmett in the MR comments section, very useful comments overall. Biddle has two other pieces on the history of air conditioning, and Biddle has other interesting pieces as well, he is apparently an underappreciated economist.
Here Scott Sumner details the import of state income taxes. In my view not the “main” factor, but a significant factor nonetheless, excerpt: “On the west coast, all states grew faster than the national average. Yes, its climate is nicer that the south central region. But look at the more detailed data and you’ll see that hot and sunny Washington state and Alaska grew the fastest of five bordering the Pacific. And oh by the way, Washington and Alaska are the only two with no state income tax.” I’ll add this point: to the extent income inequality is rising, a relatively small number of cross-state migrants can lead to a noticeable difference in cross-state growth and job creation rates. And the high earners are precisely those who are most able and most likely to leave a high-tax state for a low-tax state.