Category: Economics
The five smallest industries by firm size
For the U.S.:
Fishing, hunting, trapping: 3.1 workers on average
Building construction: 5.5
Real estate: 5.9
Funds, trusts, and other financial vehicles: 6
Repair and maintenance: 6.1
Time for some creative disruption, people…
Those figures are from the new and excellent Big is Beautiful: Debunking the Myth of Small Business, by Robert D. Atkinson and Michael Lind.
Legal Money Illusion
The state of Virginia is raising the financial threshold for defining a theft as a felony for the first time in almost four decades. Virginia’s experience highlights a peculiarity of American criminal law that results in petty criminals in many states being charged and punished as if they were big-time criminals.
For property crimes such as theft or vandalism, states set financial thresholds that are intended to differentiate low-level crimes chargeable as misdemeanors from more serious offenses chargeable as felonies. In Virginia, the legislature in 1980 defined theft as a felony if the property stolen was worth more than $200. Because of inflation, more and more petty thefts that were originally defined as misdemeanors became felonies with each subsequent year. In 2017, someone who shoplifted a $240 pair of eyeglasses that would have cost only $80 in 1980 would be charged as a felon — even though that was not the law’s original intent. A felony charge can result in a petty criminal receiving a prison term, being barred from many occupations and in some states losing the right to vote.
Virginia is raising its felony standard to $500.
That is from Keith Humphreys at WaPo, note that Alaska uses indexing.
Manhattan land prices
Using vacant land sales, we construct a land values index for Manhattan from 1950 to 2014. We find three major cycles (1950–1977, 1977 to 1993, and 1993 to 2009) with land values reaching their nadir in 1977, just after the city’s fiscal crisis. Overall, we find the average annual real growth rate to be 5.5%. Since 1993, land prices have risen quite dramatically, and much faster than population or employment growth, at an average annual rate of 15.8%, suggesting that barriers to entry in real estate development are causing prices to rise faster than other measures of local well-being. Further, we estimate the entire amount of developable land on Manhattan in 2014 was worth approximately $1.74 trillion. This would suggest an average annual return of about 6.4% since the island was first inhabited by Dutch settlers in 1626.
The article is by Jason Barr, Fred Smith, and Sayali Kulkarni, via the excellent Kevin Lewis.
How Building Regulations Subsidize Mansions
Regulations that prevent land from being fully developed raise the price of housing. That’s true but land use regulations can also make some types of housing less expensive. In particular, Jaap Weel has a good post explaining how land regulations subsidize mansions.
Consider the buildings below: a mansion on a 1 acre lot in Atherton, and a 350 unit mixed use condo on a 1.6 acre lot 2 miles further up the peninsula in Redwood City. The mansion just sold for $6m. The condo building, when finished, will probably fetch hundreds of millions.
If it weren’t for Atherton’s zoning code, you’d never be able to buy that mansion for a mere $6m. A developer that wanted to tear it down and build condos could bid far more than that. But the zoning code mandates single-unit buildings with a floor area ratio below 18% on lots of at least 1 acre, so $6m it is. Quite the bargain.
In a market economy bidding tends to move resources from low-valued uses to high-valued uses. Regulations that prevent bidding freeze resources into low-valued uses–that’s bad for the resource owners and bad for society as the total value of production is reduced but it can be good for the consumers of low-valued uses.
Addendum: For more on floor area ratio regulations, see my video on skyscrapers and slums in Mumbai.
*Skin in the Game*, the new Nassim Taleb book
By some mysterious mechanism, people fail to realize that the principal thing you can learn from a professor is how to be a professor…
And:
…the deep message of this book is the danger of universalism taken two or three steps too far — conflating the micro and the macro.
This is Taleb’s deepest and most Straussian book, quickly you will notice that the Levant and the ancient world haunt the pages. It may mystify some of his more casual fans, but I am happy to recommend it — it is the manly book Taleb wanted to write and it is full of ideas. After all, he had skin in the game.
His closing advice is this:
- Never engage in virtue signaling;
- Never engage in rent-seeking;
- You must start a business. Put yourself on the line, start a business.
You can pre-order it here.
Why are U.S. firms holding more cash?
Somehow I missed this 2014 paper when it came out:
This paper explores the hypothesis that the rise in intangible capital is a fundamental driver of the secular trend in US corporate cash holdings over the last decades. Using a new measure, we show that intangible capital is the most important firm-level determinant of corporate cash holdings. Our measure accounts for almost as much of the secular increase in cash since the 1980s as all other determinants together. We then develop a new dynamic dynamic model of corporate cash holdings with two types of productive assets, tangible and intangible capital. Since only tangible capital can be pledged as collateral, a shift toward greater reliance on intangible capital shrinks the debt capacity of firms and leads them to optimally hold more cash in order to preserve financial flexibility.
That is from Antonio Falato, Dalida Kadyrzhanova, and Jae W. Sim. Once again, it seems that intangible capital is one of the biggest underrated ideas in economics.
Randomizing Religion: The Impact of Protestant Evangelism on Economic Outcomes
That is a new and important paper by Gharad Bryan, James J. Choi, and Dean Karlan, and here are the results:
To test the causal impact of religiosity, we conducted a randomized evaluation of an evangelical Protestant Christian values and theology education program that consisted of 15 weekly half-hour sessions. We analyze outcomes for 6,276 ultra-poor Filipino house holds six months after the program ended. We find significant increases in religiosity and income, no significant changes in total labor supply, assets, consumption, food security, or life satisfaction, and a significant decrease in perceived relative economic status. Exploratory analysis suggests the program may have improved hygienic practices and increased household discord, and that the income treatment effect may operate through increasing grit.
File under “increased household discord”…
The further influence of China on Hollywood
Abstract
In various cultural and behavioral respects, emerging market consumers differ significantly from their counterparts of developed markets. They may thus derive consumption utility from different aspects of product meaning and functionality. Based on this premise, we investigate whether the economic rise of emerging markets may have begun to impact the typical “one-size-fits-all” design of many international product categories. Focusing on Hollywood films, and exploiting a recent relaxation of China’s foreign film importation policy, we provide evidence suggesting that these impacts may exist and be non-negligible. In particular, we show that the Chinese society’s aesthetic preference for lighter skin can be linked to the more frequent casting of pale-skinned stars in films targeting the Chinese market. Implications for the design of international products are drawn.
That is from a new paper by Manuel Hermosilla, Fernanda Gutierrez-Navratil, and Juan Prieto-Rodriguez.
Tulip mania wasn’t
Tulip mania wasn’t irrational. Tulips were a newish luxury product in a country rapidly expanding its wealth and trade networks. Many more people could afford luxuries – and tulips were seen as beautiful, exotic, and redolent of the good taste and learning displayed by well-educated members of the merchant class. Many of those who bought tulips also bought paintings or collected rarities like shells.
Prices rose, because tulips were hard to cultivate in a way that brought out the popular striped or speckled petals, and they were still rare. But it wasn’t irrational to pay a high price for something that was generally considered valuable, and for which the next person might pay even more.
Tulip mania wasn’t a frenzy, either. In fact, for much of the period trading was relatively calm, located in taverns and neighbourhoods rather than on the stock exchange. It also became increasingly organised, with companies set up in various towns to grow, buy, and sell, and committees of experts emerged to oversee the trade. Far from bulbs being traded hundreds of times, I never found a chain of buyers longer than five, and most were far shorter.
And what of the much-vaunted effect of the plague on tulip mania, supposedly making people with nothing to lose gamble their all? Again, this seems not to have existed.
That is from Anne Goldgar, there is much more at the link, including an explanation of how the myths about Tulip Mania spread, fake news basically. Here is her earlier book on the topic, here is an earlier Peter Garber piece.
Spock’s Brain
I take an inordinate amount of pleasure in this note from the Wikipedia entry on Spock’s Brain under Reception and Influence:
“The episode was referenced in Modern Principles: Microeconomics by Tyler Cowen and Alex Tabarrok of George Mason University as an example of how it is virtually impossible to have a command economy; in that not even Spock’s brain could run an economy.”
At left is the picture from Modern Principles; we also snuck in an oblique Simpson’s reference.
From Wikipedia I also learned that Phish has a song called Spock’s Brain, alas it is not about the difficulties of running a command economy.
A simple theory of service sector productivity
It is often about time, says Diane Coyle in the FT:
In many retail industries, higher productivity means faster service. There are many routine services where getting more for less requires less time to be spent performing them. This applies to parts of many sectors of the economy. There are past examples — think of the impact of the washing machine on doing the laundry or the ATM on taking money out of the bank — but now we are seeing much more automation in new areas such as legal search, scrutiny of medical tests and buying train tickets online. There is surely much further to go as artificial intelligence advances.
Of course a lot of service sector transactions aren’t so much about product quality as simply having a barrier removed from a basic enjoyment of life. How long did it take the CVS clerk or the DMV to serve you?
Should this point make us feel better or worse about the biases in productivity statistics? If nothing else, traffic congestion has become worse. On the other hand, with smart phones and iPads, waiting in line never has been better.
What Should be Done About Bulgaria’s Population Decline?
Bulgaria has the fastest declining population in the world. From a peak of nearly 9 million around the time of the communist fall in 1990 Bulgaria’s population is 7 million today and projected to fall to around 5 million over the next generation. Entire villages have been depopulated, especially in the poorer Northern region.
A correspondent wrote me asking what to do. I responded what’s the problem? Of course, there are plenty of things one could do to make Bulgaria a richer and better place to live, some of which Bulgaria has been doing and some of which they have not. The more fundamental question, however, is why the number of a particular type of people located in a particular geographically proscribed area should be a measure of welfare?
Instead of focusing on Bulgaria let’s focus on Bulgarians. One of the reasons the population of Bulgaria has been falling is that Bulgarians have been leaving for better lives elsewhere in the European Union. Over one million Bulgarians live abroad. It is not always easy to move nor to stay in a village that is bereft of young people. But how fortunate is that those young people could move elsewhere. Instead of thinking of them just as Bulgarians lets think of them as citizens of the European Union. Problem solved. The EU population is increasing!
Is that a facile answer? Perhaps but note that in the United States great swaths of the country have seen declining populations since the 1930s or even earlier. We tend not to regard this as a big deal. In part because many of the areas with declining populations were small to begin with but also because we regard it as a good thing that Americans can move about the country. Indeed, because people have been free to move to opportunity the people remaining have not seen big declines in their standard of living. Ghosts are better than zombies.
Addendum: Bulgaria has some great beaches and historic sites at very reasonable prices!
The Gender-Equality Paradox in Science, Technology, Engineering, and Mathematics Education
That is a new paper by Gjisbert Stoet and David C. Geary, here is the abstract, noting that the last sentence is perhaps the most important:
The underrepresentation of girls and women in science, technology, engineering, and mathematics (STEM) fields is a continual concern for social scientists and policymakers. Using an international database on adolescent achievement in science, mathematics, and reading (N = 472,242), we showed that girls performed similarly to or better than boys in science in two of every three countries, and in nearly all countries, more girls appeared capable of college-level STEM study than had enrolled. Paradoxically, the sex differences in the magnitude of relative academic strengths and pursuit of STEM degrees rose with increases in national gender equality. The gap between boys’ science achievement and girls’ reading achievement relative to their mean academic performance was near universal. These sex differences in academic strengths and attitudes toward science correlated with the STEM graduation gap. A mediation analysis suggested that life-quality pressures in less gender-equal countries promote girls’ and women’s engagement with STEM subjects.
So what is the implied prediction for our future?
For the pointer I thank the excellent Kevin Lewis.
My debate with Noah Smith on fiscal policy
This is at Bloomberg, I think this is the most interesting paragraph:
But Noah, I have a question for you. You’ve written several columns about how the American economy is becoming more monopolistic. If true (and it is not exactly my view), that implies output could be much higher with current resources, even at full employment. A boost in demand could spur firms to produce more, rather than restricting output so much. So are you now a fan of these Trumpian deficits? They may not be your preferred form of deficit spending, but do you see them still as a net positive?
But of course there is much more at the link.
The side effects of the decline of men
That is the topic of my latest Bloomberg column, and it is not just about male wage stagnation:
The researchers Guido Matias Cortes, Nir Jaimovich and Henry E. Siu split jobs into categories, with “cognitive” occupations relying on brain power corresponding closely to what many call white-collar jobs. Their worrying result for men is this: In 1980, 66 percent of college-educated men worked in these cognitive occupations. By 2000, that had fallen to 63 percent. Those three percentage points may not sound like a major change, but that’s over a 20-year period when the American economy became wealthier and more Americans became educated. Men also grew older as a group during this time, which should have propelled them into more white-collar jobs. Relative to those expectations of improvement, the retrogression is startling.
…One possible reason for this shift is that more jobs demand good social skills. The data show that the growing demand for social skills, as measured by job characteristics and employment ads, has matched where women have gained relative to men in the workplace. The researchers suggest the scientific evidence shows that women have on average stronger skills in empathy, communication, emotion recognition and verbal expression, and corporate America is valuing those qualities all the more.
There is much more at the link.