Category: Economics
Rasheed Griffith on the economics and aesthetics of Asunción
Yet, on my first visit to Asunción last week none of that was on my mind. What was striking was the total absence of any aesthetic coherence of the city.
There are some economic reasons for this:
Going back to the middle class consumption point. If only around 300,000 Paraguayans make up the domestic personal income tax base then it’s perhaps not a local middle class that is buying and renting the new modern high rise apartments in Asunción.
Indeed, 70% of the new housing supply are acquired by foreign investors as a capital preservation strategy. They are not bought by locals. These are often investors from Argentina, who according to some data account for 70% of all foreign investors. They buy the apartments and then rent them out? But to who?
Usually foreigners who go to Paraguay for work purposes or new residents who take advantage of Paraguay’s quick and easy residency scheme and citizenship program. And the fun part is that these rental contracts are usually in dollars! Not the local currency (the Guaraní, PYG). Of course, Argentines buy property in Paraguay and prefer to receive dollars in rent.
The entire post is excellent There is also this:
There is a lot more that I could say about Paraguay. Like how the War of the Triple Alliance (1864-1870) resulted in the death of 70% of adult men in Paraguay; giving the country the highest male-mortality proportion ever reliably documented for a nation-state in modern warfare.
I have yet to visit Paraguay, but someday hope to. But should this post induce me to accelerate or delay my timetable?
Two Laws
In Italy, you need a doctor’s permission before joining a gym or running a marathon.
In Virginia and many other states, you need an annual auto safety inspection to legally drive.
Which of these laws is the most beneficial/costly? Show your work.
Of Course We Should Privatize Some Federal Land (but probably won’t)
The Federal government controls a ridiculous amount of land in the West including more than half of Oregon, Utah, Nevada, Idaho and Alaska and nearly half of California, Arizona, New Mexico and Wyoming. See the map (PDF). The vast majority of this land is NOT parks!!! It is time for a sale to raise some funds and improve the efficiency of land allocation.
The conservative Mike Lee has a bill that would allow some sales. Great! The only problem with the bill is that it is loaded down with restrictions and qualifications. For example, there is a cap of 0.75% on total sales–that’s right, the land sales are capped at less than 1% of the total Federal land and that is a high cap because most of the rules prohibit any sale. The sales that are allowed have to be nominated by state or local governments, must be adjacent to developed areas and close to infrastructure. Moreover, the land can only be use for housing. Lyman Stone has a thread going into even more detail. The very modest goal–as you can see at right–is to rationalize some checkerboard land patterns.
Even so, the bill is probably doomed. Just mentioning federal land sales triggers a moral panic, as if someone proposed auctioning off Yellowstone. Supposed conservatives like Lomez are fueling this hysteria (e.g. here, here and here). It’s nonsense. Here and here is the type of land we are actually talking about—notice the difference?
As Matt Darling pointed out, this is Everything Bagel Liberalism from Conservatives—a bloated mess of proceduralism that empowers special interests and kneecaps supply.
If we can’t even sell Federal scraps then we’ve abandoned any pretense of governing in the public interest. We should be building entirely new cities–freedom cities!–not whining about fishing and hunting on scraps of scrub. This is exactly the same as urban NIMBYs who lobby to save “historic” parking lots. Pathetic. The federal land monopoly is not sacred. Let it go. This is where the rubber hits the road: if MAGA means anything beyond vibes and grievance, it should mean cutting red tape and unlocking land for Americans to own and build upon.
A Skeptical View of the NSF’s Role in Economic Research
Tyler and myself from 2016 but newly relevant on how to reform the National Science Foundation (NSF) especially as related to economics:
We can imagine a plausible case for government support of science based on traditional economic reasons of externalities and public goods. Yet when it comes to government support of grants from the National Science Foundation (NSF) for economic research, our sense is that many economists avoid critical questions, skimp on analysis, and move straight to advocacy. In this essay, we take a more skeptical attitude toward the efforts of the NSF to subsidize economic research. We offer two main sets of arguments. First, a key question is not whether NSF funding is justified relative to laissez-faire, but rather, what is the marginal value of NSF funding given already existing government and nongovernment support for economic research? Second, we consider whether NSF funding might more productively be shifted in various directions that remain within the legal and traditional purview of the NSF. Such alternative focuses might include data availability, prizes rather than grants, broader dissemination of economic insights, and more. Given these critiques, we suggest some possible ways in which the pattern of NSF funding, and the arguments for such funding, might be improved.
Markets are forward-looking
LPL Financial analyzed 25 major geopolitical episodes, dating back to Japan’s 1941 attack on Pearl Harbor. “Total drawdowns around these events have been fairly limited,” Jeff Buchbinder, LPL’s chief equity strategist, wrote in a research note on Monday. (Full recoveries often “take only a few weeks to a couple of months,” he added.)
Deutsche Bank analysts drew a similar conclusion: “Geopolitics doesn’t normally matter much for long-run market performance,” Henry Allen, a markets strategist, wrote in a note on Monday.
Here is the NYT piece, via the excellent Kevin Lewis.
The Deadly Cost of Ideological Medicine
Excellent Megan McArdle column in the Washington Post tracing how we have swung from one form of insanity on vaccine policy to another with barely a pause in between:
In more than 20 years of covering policy, I have witnessed some crazy stuff. But one episode towers above the rest in sheer lunacy: the November 2020 meeting of the CDC’s Advisory Committee on Immunization Practices. Sounds boring? Usually, maybe.
But that meeting was when the committee’s eminent experts, having considered a range of vaccine rollout strategies, selected the plan that was projected to kill the most people and had the least public support.
In a survey conducted in August 2020, most Americans said that as soon as health-care workers were inoculated with the coronavirus vaccine, we should have started vaccinating the highest-risk groups in order of their vulnerability: seniors first, then immunocompromised people, then other essential workers. Instead of adopting this sensible plan, the Centers for Disease Control and Prevention advisory committee decided to inoculate essential workers ahead of seniors, even though its own modeling suggested this would increase deaths by up to 7 percent.
…Why did they do this? Social justice. The word “equity” came up over and over in the discussion — essential workers, you see, were more likely than seniors to come from “marginalized communities.” Only after a backlash did sanity prevail.
…That 2020 committee meeting was one of many widely publicized mistakes that turned conservatives against public health authorities. It wasn’t the worst such mistake — that honor belongs to the time public health experts issued a special lockdown exemption for George Floyd protesters. And of course, President Donald Trump deserves a “worst supporting actor” award for turning on his own public health experts. But if you were a conservative convinced that “public health” was a conspiracy of elites who cared more about progressive ideology than saving lives — well, there was our crack team of vaccine experts, proudly proclaiming that they cared more about progressive ideology than saving lives.
This is one of the reasons we now have a health and human services secretary who has devoted much of his life to pushing quack anti-vaccine theories.
I recall this episode well. Nate Silver and Matt Yglesias deserve credit for publicizing the insanity and stopping it–although similar policies continued at the state level.
New U.S. Corporate Tax Reform Evidence
The Tax Cuts and Jobs Act of 2017 (TCJA) marked the first time in three decades that material changes were made to the corporate tax code of the United States. We use TCJA as a quasi natural experiment to estimate the impact of changes in user cost of capital on investment. Following the method of Auerbach and Hassett (1991), using cross-sectional data we find that the user cost is associated with higher rates of investment consistent with previous studies. BEA asset types with greater reductions in user cost of capital and marginal effective tax rate (METR) after the 2017 TCJA had greater statistically significant increases in their investment rates several years after the tax reform. Specifically, we find the magnitude of a 1 percentage point decrease in user cost is associated with a 1.68 to 3.05 percentage point increase in the rate of investment, larger than prior estimates of the responsiveness of investment with respect to user cost of capital.
That is from a new NBER working paper by
Rebuild the Elites
Nature’s list of the top research universities in the world.
The U.S. seems intent on tearing down its own elites. Yes, they’ve been smug shits at times and deserve a rap on the knuckles—but our elites compete on the world stage. Gutting top universities rewards with a momentary dopamine hit, but unless we rebuild stronger institutions, we’re weakening ourselves globally. While we fight culture wars, China builds capacity. The goal shouldn’t be to destroy American elites, but to bring them back into the populist fold—to make Harvard and MIT feel like engines of American greatness again, not alien fortresses.
See yesterday’s post on the American Model for a case in point.
FYI, other sources do not rank Chinese universities quite so highly but they all acknowledge rising quality.
Hat tip: Matthew Yglesias.
The Return of the American Model
In talking about Operation Warp Speed I repeatedly placed it in the context of what I call the American Model of emergency response. The American model is the fusion of federal spending power with the speed, ingenuity, and innovation of the private sector. It aligns the visible hand of government with the invisible hand of the market. Operation Warp Speed was the most recent example, but the most important demonstration of the American Model was the shift to a wartime economy during World War II.
As Arthur Herman recounts in the excellent Freedom’s Forge, it wasn’t centralized command or sweeping nationalization that turned the United States into the “arsenal of democracy.” It was a partnership between government and business—figures like William Knudsen and Henry Kaiser mobilized private firms to outproduce the Axis through decentralized execution and rapid innovation funded by federal investment and aided by deregulation and the ending of New Deal attacks on markets and entrepreneurs. William Knudsen, the penniless Danish immigrant who worked his way to key positions in Ford and General Motors, being commissioned as a lieutenant general in the United States Army epitomizes the American Model.
In an incredible piece, Shyam Sankar the CTO of Palantir explains why he has accepted a commission as a lieutenant colonel in the Army Reserve’s newly formed Detachment 201: Executive Innovation Corps.
I decided to join the military for reasons both patriotic but also intensely personal.
My father grew up in a mud hut in Tamil Nadu, the southernmost state in India. He was the youngest of nine children and the first in his family to attend college—an education made possible only by his eight siblings pooling their wages. After graduation, he moved to Lagos, Nigeria, to build and run a pharmaceutical plant. Through ingenuity and an enterprising spirit, he became successful at a remarkably young age.
When I was 2, our life in Lagos ended violently. Five armed men broke into our home, killed our dog, pistol-whipped my father, and threatened my mother as they demanded money from the company safe. We fled Lagos with nothing, and started over in America.
My father took a job at a company that supplied souvenirs to theme parks in Orlando, Florida. My childhood memories are punctuated by Space Shuttle launches seen from my school courtyard, and by the bone-rattling double sonic booms of the Shuttles’ reentry. Lessons about the power of American technology were literally falling from the sky around me.
My father never again saw the material success of his youth, and he faced setback after setback in America. But he always reminded me of the counterfactual: “But for the grace of this nation, you would be dead in a ditch in Lagos.” America gave him life, liberty, and possibility.
Many lessons here about immigration, markets, universities, elites and more. Read the whole thing.
The smoking tax Laffer curve: Australia is not exempt from the laws of economics
Over the past decade, the excise rate per cigarette has tripled from 46c to $1.40. The excise now accounts for $28 of the average $40 price for a packet of 20 cigarettes.
For some time a rising tax was associated with the twin benefits of falling smoking rates and rising revenue, but after peaking at $16.3bn in 2019-20, federal excise receipts have plunged.
The March budget forecasts tobacco excise receipts will be just $7.4bn in this financial year – the lowest since 2012-13 – and will continue to fall to $6.7bn by the end of the decade.
Rather than a sudden collapse in smoking rates, experts point to an explosion in the availability of black market tobacco in recent years.
Here is the full story.
What (else) do unions do?
From a 2023 paper by Vojislav Maksimovic and Liu Yang:
Using plant-level data from the Census Bureau, we show that in addition to paying higher wages and benefits, unionized plants have lower and less effective incentives. Unionized plants do not exhibit the same positive associations between incentives and investment and growth found in non-unionized plants. This effect holds among both non-managerial and managerial employees, although it has a more pronounced influence on the former group. Consequently, unionized plants experience higher rates of closure, reduced investment, and slower employment growth. We also find significant spillover effects within the firm: partially unionized firms not only offer higher wages but also maintain weaker incentives in their non-unionized plants compared to their industry peers. These effects are economically significant and are half of our estimated reduction in incentives in unionized plants. This pattern aligns with the hypothesis that incentives in non-unionized plants create disutility for the median worker. Spillovers reduce employment and efficiency and make firms less attractive as potential targets, thus reducing the market’s effectiveness in allocating corporate assets. By leveraging recent changes in state-level right-to-work laws, we provide causal evidence that states that adopt such laws experience a boost in employment and investment.
The New Monetary Economics is underway, legislation allowing
Walmart & Amazon are looking into issuing their own stablecoins—cutting out banks, cards, and slow settlement. If laws like the Genius Act clear, we might be on the cusp of merchant-issued money. Are you ready for a world where checkout includes “Pay with WalmartCoin/AmazonCoin”?
Here is the tweet, here is the WSJ article. Here is my podcast with Alex on the new monetary economics. Note the tagline “What if the most radical ideas about money weren’t wrong—just early?”
The value of good management, and also talent allocation
Why do managers matter for firm performance? This paper provides evidence of the critical role of managers in matching workers to jobs within the firm using the universe of personnel records from a large multinational firm. The data covers 200,000 white-collar workers and 30,000 managers over 10 years in 100 countries. I identify good managers as the top 30% by their speed of promotion and leverage exogenous variation induced by the rotation of managers across teams. I find that good managers cause workers to reallocate within the firm through lateral and vertical transfers. This leads to large and persistent gains in workers’ career progression and productivity. Seven years after the manager transition, workers earn 30% more and perform better on objective performance measures. In terms of aggregate firm productivity, doubling the share of good managers would increase output per worker by 61% at the establishment level. My results imply that the visible hands of managers match workers’ specific skills to specialized jobs, leading to an improvement in the productivity of existing workers that outlasts the managers’ time at the firm.
That is from a recent paper by Virginia Minni. Via the excellent Kevin Lewis.
How New Zealand invented inflation targeting
…the very next day, [Roger] Douglas appeared on TV declaring his intention to reduce inflation to ‘around 0 or 0 to 1 percent’ over the next couple of years, and then went on to make several similar comments in the following days.
Douglas would soften his stance on specific timelines but ask the Reserve Bank and Treasury to develop public inflation goals for the next few years that would support his earlier statements. The Bank added 1 percentage point to Douglas’s upper range to account for the measurement bias in inflation data at that time, arriving at a target range of 0–2 percent. Michael Reddell, head of the Reserve Bank’s monetary policy unit, said it was settled on ‘more by osmosis than by ministerial sign-off’.
This development led officials to entertain the idea of making inflation targets part of the Bank’s monetary policy framework. David J. Archer, a former Assistant Governor, said inflation targets were eventually chosen ‘as the least bad of the alternatives available’.
…A new Reserve Bank Act was passed in December 1989 and came into effect in February 1990. Governor Don Brash was tasked with reaching the 0–2 percent target by the end of 1992. To the great surprise of many, it was achieved a year ahead of schedule in December 1991.
What happened when Spain brought back the wealth tax?
From the Journal of Public Economics Twitter feed:
What happened when Spain brought back the Wealth Tax in 2011? Using variation in exposure, this paper finds: – No drop in savings, but drop in taxable wealth—mainly via legal avoidance – Asset shifting caused most revenue loss – Estimated revenue loss was 2.75x initial 2011 rev.
Here is the full paper by Mariona Mas-Montserrat, José María Durán-Cabré, and Alejandro Esteller-Moré. Via Jerusalem Demsas.